Sector Thematic Real Estate Estate - Retail - Ripe for... · Real Estate - Retail . HSIE Research...
Transcript of Sector Thematic Real Estate Estate - Retail - Ripe for... · Real Estate - Retail . HSIE Research...
Sector Thematic
Real Estate Ripe for consumption
COVID-19 has been a black swan event, which has hit the retail malls sector hard,
both globally and locally. But consumption in the system remains subdued due to
regulatory restrictions and personal safety preferences. We believe we are a
vaccine away from normalcy, and it will be a hard road over the next 12-15
months. For well-capitalized organized players, it is a blessing in disguise to be
able to (1) build inorganic assets at high cap rates (2) optimize/relook capital
allocation, and (3) further gain market share through consolidation.
Foot ‘falls’ – provides attractive entry In the past three months, Phoenix Mills Ltd (PML) has corrected 30% on the back
of (1) COVID-led mall closures, (2) concerns over work from home, (3) likely
correction in retail rents, and (4) concerns over the long road ahead to normalcy.
However, we believe that consumption will mean revert once the vaccine is in
place. Strong market positioning, marquee assets, and robust financial track
record place PML in a position to tide over the current headwinds. We believe the
company is 'ripe for consumption' and initiate coverage with a SOTP of Rs 828/sh.
Parikshit Kandpal Real Estate, Construction & Infra
+91-22-6171-7317
Chintan Parikh Real Estate, Construction & Infra
+91-22-6171-7330
Rohan Rustagi Real Estate, Construction & Infra
+91-22-6171-7355
21 August 2020 Sector Thematic
Real Estate - Retail
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Ripe for consumption COVID-19 has been a black swan event, which has hit the retail malls sector
hard, both globally and locally. In the near term, this has led to asset values
correcting 35-40% with concerns on survival of the modern-day consumption
format. But consumption in the system remains subdued due to regulatory
restrictions and personal safety preferences. We believe we are a vaccine away
from normalcy, and it will be a hard road over the next 12-15 months. For well-
capitalized organized players, it is a blessing in disguise to be able to (1) build
inorganic assets at high cap rates (2) optimize/relook capital allocation, and (3)
further gain market share through consolidation.
COVID-19–a great leveler–hits global REITs hard: The pandemic has cratered
the global retail REITs as lockdown has hit consumption and rentals for malls
resulting in 20-60% corrections in REITs values, making NDCF yield more
attractive than reference bonds. For Indian real estate stocks, either pure-plays
(like Phoenix) or proxies (other players with mall exposures) stories are not too
different, with stock prices correcting 35-40%. This provides attractive entry for
investors on sidelines. We believe consumption will pick up over the next 12-15
months with normalized monthly run-rate by next Diwali 2021 or Nov 2021. The
recovery is just a vaccine away.
India malls story mirrors global picture, reinvents, and builds on: We have
done detailed 10-yr study of growth matrices of over 50+ large mall
brands/stores listed in various Indian malls. India has seen sharp changes in
consumption patterns with aspirational class moving towards luxury goods and
newer experiential services like multiplexes, F&B, luxury watches, departmental
stores, beauty & salon, etc. We have bucketed these in categories and arrive at
26% FY16-19 revenue CAGR and robust profitable growth on the back of urban
consumption. Rent as cost is sizeable but most of the categories have seen
profitable growth and rent is not the only determining factor for mall presence.
Global capital chasing scarce high quality mall assets: In the near term, the
pandemic shock is a passing phase and consumption will revert to mean once
the pandemic wanes. Global brands continue to expand in malls, and global
funds are investing capital for this consumption play, viz., Blackstone, Xander,
GIC, and CPPIB. We see more partnering/strategic opportunities emerging for
organized mall developers like Phoenix Mills Ltd (PML).
Large organized mall portfolio rated-A, Capex could be deferred to tackle
balance sheet woes: We have carried out a detailed financial assessment of large
unlisted and listed malls. Studying their credit rating reports, we find that,
overall, 36% of the organized malls have A-rating. Credit rating agencies have
put the A-rated malls on negative watch due to the pandemic, despite which, the
rating width is positive. We believe new supply would be curtailed and
completion timelines of under-construction malls could be pushed by 1-2 years.
Initiate coverage on Phoenix Mills (PML) with SOTP of Rs 828/sh: We believe,
with strong balance sheet and marquee assets position, PML is well-poised to
ride the cyclical recovery (at present, restrictions on mall’s operations and
COVID-led fears have curtailed the underlying demand). PML is a derivate on
richly valued underlying consumption real estate play with a vast scope for
expansion. In the long run, it holds the potential for significant cash flow
distribution and growth. Near-term headwinds remain, but current prices
provide ‘quality at reasonable price.
Company
MCap
(Rs
bn)
CMP
(Rs) Reco.
TP
(Rs
/sh)
Phoenix Mills 100 649 BUY 828
DLF 398 161 BUY 219
Oberoi 137 377 BUY 500
Prestige Est 102 256 BUY 280
Brigade Ent 34 162 BUY 213
Sobha Ltd 25 265 BUY 348
Kolte Patil 13 177 BUY 240
Parikshit D Kandpal, CFA
+91-22-6171-7317
Chintan Parikh
+91-22-3021-7330
Rohan Rustagi
+91-22-3021-7355
Page | 2
Sector Thematic: Real Estate - Retail
Contents Globally REITs have been cratered .................................................................................... 3
Re-rating just a vaccine away .............................................................................................. 5
Large REIT players' price underperformance ................................................................... 6
Indian malls replicate the global story ............................................................................. 7
High rentals as percentage of sales; few categories report losses ................................. 8
Mall rental growth highly linear to consumption growth ............................................. 9
Regression analysis categories wise ................................................................................ 10
Global capital wants to have pie of Indian consumption ............................................ 11
Indian players not behind, chase mall build out ........................................................... 12
India still underpenetrated, malls remain mostly urban play .................................... 13
Significant Capex plans for Tier 1 may slow down, face delays ................................. 14
FY21/22E to be a tough year for the retail mall sector ................................................... 15
Credit agencies remain investment grade on malls ...................................................... 16
Key risks ............................................................................................................................... 20
Phoenix Mills Initiation Note ............................................................................................ 21
Page | 3
Sector Thematic: Real Estate - Retail
Globally REITs have been cratered
Hit by pandemic-led lockdown and concerns of bankruptcies
COVID-led disruptions and lockdown have severely impacted the retail malls
segment globally. In the exhibit below, we highlight price performance of global
listed REITs in the US, Japan, Singapore, Australia, and Hong Kong. In India, we do
not have a listed pure-play REIT and, hence, we have taken Phoenix Mills as a proxy.
The extent of price damage is more vigorous for REITs with high leverage as
bankruptcies loom, and reversals of consumption to pre-COVID levels are at least a
year away. Most of the listed REITs have corrected 20-50%.
Retail REITs performance
REIT name CMP Absolute performance (%) Relative performance (%)#
1m 3m 6m 12m YTD 1m 3m 6m 12m YTD
US (USD)
Simon Property 64.0 2.3 18.9 (53.9) (57.7) (54.9) (2.2) 3.5 (14.5) (17.7) (16.9)
Spirit Realty Corp 35.1 11.0 23.1 (32.9) (22.1) (24.7) 6.5 7.7 6.6 17.9 13.3
The Macerich Co. 7.4 (2.7) 25.8 (66.0) (73.0) (68.3) (7.3) 10.5 (26.6) (33.0) (30.3)
Taubman Centre 37.6 2.1 (10.9) (28.1) (8.4) 28.0 (2.5) (26.3) 11.3 31.7 65.9
Realty Income Corp 61.0 9.6 15.6 (20.6) (14.1) (13.8) 5.0 0.3 18.8 26.0 24.1
National Retail 35.1 9.8 17.8 (34.9) (33.2) (29.9) 5.3 2.5 4.5 6.8 8.1
Agree Realty Corp 66.6 6.0 5.8 (11.4) (4.2) 0.0 1.4 (9.6) 28.0 35.9 38.0
Saul Centres 27.8 5.2 10.3 (31.9) (40.4) (37.2) 0.6 (5.0) 7.5 (0.4) 0.7
Tanger Factory Outlet 5.9 (2.9) 5.2 (52.0) (59.1) (54.7) (7.4) (10.1) (12.6) (19.0) (16.7)
Pennsylvania REIT 1.1 (1.6) 17.8 (66.9) (76.8) (75.4) (6.1) 2.4 (27.5) (36.7) (37.5)
Japan (JPY)
Japan Retail 1,47,100 10.2 (5.6) (40.8) (36.1) (40.4) 9.1 (7.2) (16.9) (19.1) (18.6)
Frontier REIT 3,37,000 (3.4) (10.1) (30.8) (30.8) (32.3) (4.5) (11.7) (7.0) (13.7) (10.5)
AEON 1,12,000 (0.7) (7.2) (23.4) (20.0) (25.7) (1.8) (8.8) 0.5 (2.9) (3.9)
Singapore (SGD)
Capitaland Mall 1.86 (7.4) 1.1 (24.3) (28.4) (24.0) (5.9) (7.0) (12.3) (21.6) (13.6)
Fraser Centre Point 2.37 (3.8) 10.7 (21.4) (12.0) (18.3) (2.3) 2.6 (9.4) (5.2) (7.9)
SPH REIT 0.85 (3.4) 6.9 (20.6) (20.6) (21.3) (1.9) (1.2) (8.6) (13.8) (11.0)
Starhill Global 0.45 (16.0) (8.2) (36.4) (40.7) (38.6) (14.5) (16.4) (24.4) (33.9) (28.3)
Australia (AUD)
Scentre Group 1.99 (2.4) (9.2) (46.6) (48.3) (46.2) (7.8) (16.6) (21.6) (24.6) (26.6)
Vicinity Centres 1.26 3.6 (8.5) (46.4) (45.7) (45.1) (1.8) (15.9) (21.3) (22.1) (25.4)
Shopping Centres 2.13 4.6 4.6 (25.6) (10.2) (14.9) (0.9) (2.8) (0.6) 13.5 4.8
Charter Hall 3.24 0.8 2.4 (33.1) (30.8) (24.4) (4.6) (5.0) (8.0) (7.1) (4.7)
Waypoint 2.67 (2.5) 4.0 (10.6) (5.5) (7.3) (8.0) (3.4) 14.4 18.2 12.4
Hong Kong (HKD)
Link 60.3 (2.7) (10.7) (21.9) (32.4) (25.2) 0.7 (1.7) 0.9 (2.4) 0.8
Fortune 6.59 (3.9) (9.5) (25.6) (33.3) (27.0) (0.5) (0.6) (2.8) (3.3) (1.0)
India
Phoenix Mills* 649 1.2 16.1 (31.3) (5.3) (27.6) (3.8) (6.4) (24.8) (7.2) (19.7)
Source: Bloomberg, HSIE Research *In the absence of a Retail REIT in India, we have considered Phoenix
Mills, pure-play mall operators for comparison # Relevant benchmark indices
REITs have corrected
sharply, particularly retail
REITs, due to COVID led
uncertainties
Across US & APAC, REITs
have fallen by 20-50%
With consumption
recovery still a far-cry, the
extent of correction is more
substantial for highly
levered retail developers
Phoenix Mills (PML), only
listed pure-play retail
developers, is down 30%
from the high Feb’20
Page | 4
Sector Thematic: Real Estate - Retail
REITs are yet to recover
Most of the global equity indices are nearing their 52-week high levels as gradually
phased unlocking has resulted in demand recovery (pent up or normal) and is
catching up to pre-COVID levels. REIT indices have not been able to give this
confidence to the markets as (1) many of the malls remain locked, viz., multiplexes
and general entertainment with tepid demand in the F&B segment, (2) occupiers have
asked for 50-70% discount vs Minimum Guarantee and (3) consumers have been
staying away from malls due to safety concerns. This entire development has led to
consumption falling to 20-25% of the pre-COVID level. Some of the malls may even
need to shut down as revenue shortfall will not be sufficient to cover operating costs,
putting pressure on debt servicing. In the Indian context, PML remains resilient with
a robust balance sheet and potential fund raise.
Index Market CMP 52W high vs High 52W low vs Low
Dow Jones US 27,693 29,569 -6% 18,214 53%
S&P 500 US 3,375 3,394 -1% 2,192 53%
Nifty Index India 11,312 12,431 -9% 7,511 51%
Sensex index India 38,220 42,274 -9% 25,639 50%
Hang Seng Index Hong Kong 24,791 29,175 -14% 21,139 18%
Nikkei Japan 22,881 24,116 -6% 16,358 39%
Strait Times Index Singapore 2,528 3,286 -23% 2,208 15%
S&P/ASX 200 Australia 6,120 7,197 -15% 4,403 39%
DJ Global Select REIT Index Global 1,068 1,401 -21% 1,401 -21%
DJ US Select REIT US 232 314 -24% 169 42%
DJ Composite All REIT US 260 318 -18% 176 48%
DJ US Retail REIT US 61 111 -43% 44 43%
FTSE Nareit Equity US 198 377 -45% 157 33%
S&P Asia Pacific REIT Asia 205 257 -21% 139 46%
Hang Seng REIT Index Hong Kong 5,496 7,914 -31% 5,072 8%
TSE REIT Japan 1,696 2,262 -26% 1,138 48%
iEdge S-REIT index Singapore 1,297 1,526 -15% 918 41%
S&P/ASX 200 A-REIT EW Australia 1,257 1,736 -27% 877 44%
Source: Bloomberg, HSIE Research
Optimism around V-
shaped economic recovery
has induced a sharp rally
and now most of the global
indices are close to their
52-week high
However, REIT indices
have been exceptions
While Dow Jones
Composite All REIT (All
US REITs) has recovered
and is down 18%, Dow
Jones Retail REIT is still
43% below its 52-week
high
Page | 5
Sector Thematic: Real Estate - Retail
Re-rating just a vaccine away
The correction presents an opportunity to own REITs at
attractive valuations
Long-term growth has been much ahead for REIT index vs other developed global
indices. REITs are an extended play on consumption and, hence, with consumption
reversals, these would stand to benefit. In the exhibit below, we highlight REITs
performance vs other asset classes on a 20-year CAGR basis. REITs are placed after
Gold globally and behind emerging markets indices. The recent correction presents
an excellent opportunity to look at this alternate relatively lower risk asset class vs
equities.
REITs have given consistent return over multiple horizons (%)
5yr 10yr 15 yr 20yr
Strait Times Index (3.7) (1.4) 0.8 1.0
Nikkei 2.3 9.5 4.2 1.8
Hang Seng 0.8 1.6 3.2 1.9
ASX 2.6 3.3 2.1 3.1
Nasdaq 100 18.2 19.3 13.6 5.1
ICE BofAML Corp/Govt. Bond 4.8 4.2 4.5 5.3
S&P 500 10.7 14.0 8.8 5.9
Russel 2000 4.3 10.5 7.0 6.7
Dow Jones Industrial 7.9 10.2 6.3 4.6
FTSE Nareit 6.6 10.4 6.9 10.1
Gold 10.8 4.4 10.1 10.2
Nifty 6.2 7.6 11.0 11.4
Sensex 6.8 7.8 11.2 11.7
Source: Bloomberg, NAREIT, HSIE Research
20-year annualised return across asset categories (%)
Source: Bloomberg, NAREIT, HSIE Research
In our view, correction
presents an opportunity to
enter this asset class as
long term growth of REITs
have been much ahead
compared to other global
indices
Retail REITs are
reasonable proxy for
consumption play
Hence, we believe, REITs
would benefit once
consumption recovery
takes place
- 2.0 4.0 6.0 8.0 10.0 12.0 14.0
Strait Times Index
Nikkie
Hang Seng
ASX
Dow Jones Industrial
Nasdaq 100
ICE BofAML Corp/Govt. Bond
S&P 500
Russel 2000
FTSE Nareit
Gold
Nifty
Sensex
Page | 6
Sector Thematic: Real Estate - Retail
Large REIT players' price underperformance
Makes NOI, NDCF yields attractive vs long-term bond yields
The price correction has made the Net Distributable Cash Flow (NDCF) Yield
attractive vs long-term sovereign bonds or other corporate bonds. Whilst globally the
interest rates have seen a correction, counter-intuitively, NDCF yields have seen
expansion due to risk perception on REITs defaulting and leading to bankruptcies. In
the Indian context, we see limited risks for PML as it has low leverage and fund-raise
may lead to risk-off and price re-rating. Consumption recovery may take time to pan
out, but aggressive expansion in new cities bodes well for growth whilst operational
malls may also see post-COVID recovery over the next one year, lending visibility to
a stable balance sheet.
Snapshot of retail REITs
REIT Name Occupancy MCap
(USD mn)
EV
(USD mn)
EV/EBITDA
(x)
NOI
5yr
CAGR
NOI
10yr CAGR NDCF yield
US
Simon Property 95% 20.5 45.6 11.7 3% 5% 19%
Realty Income Corp. 99% 21.6 29.7 20.3 10% 16% 5%
National Retail 99% 6.4 9.7 16.7 9% 12% 7%
Spirit Realty Corp 100% 3.7 6.2 13.6 -6% 5% 9%
Agree Realty Corp 100% 3.6 4.4 23.8 27% 18% 4%
Taubman Centre 94% 2.4 6.1 17.9 0% 0% 14%
Saul Centers 95% 0.8 2.1 15.0 2% 3% 13%
Japan
Japan Retail 100% 3.5 6.5 17.0 0% 3% 8%
AEON 99% 1.9 8.9 9.1 23% NA 10%
Frontier REIT 100% 1.5 2.4 16.9 2% 5% 9%
Singapore
Capitaland Mall 99% 5.0 7.6 23.3 4% 4% 6%
Fraser Centre Point 96% 1.9 2.6 23.6 3% 9% 5%
SPH REIT 99% 1.7 2.6 20.6 7% NA 6%
Starhill Global 97% 0.7 1.5 18.8 0% 4% 8%
Australia
Scentre Group 99% 7.8 17.8 14.1 7% NA 12%
Vicinity Centres 100% 4.4 7.1 12.7 13% 42% 11%
Charter Hall
1.4 1.8 13.7 2% -1% 7%
Hong Kong
Link 97% 16.5 20.4 20.1 9% 11% 5%
Fortune 97% 1.7 2.8 11.0 5% 11% 8%
Source: Bloomberg, Company, HSIE Research
Average 10 year G-sec yield over past decade
Source: Bloomberg, HSIE Research; FTSE EPRA/Nareit Global dividend yield
Globally, G-sec yields
have fallen below 1% as
central banks injected
liquidity to revive
economies
On the other hand, sharp
correction in Retail REITs
has resulted in NDCF yield
expansion as concern over
their bankruptcies linger
Compared to its global
peers, PML is on a strong
footing, given its relatively
low leverage and room for
growth in India
3.0%
2.2% 2.0%1.7%
0.4%
3.9%
0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%
Australia USA Singapore Hong Kong Japan FTSE
EPRA/Nareit
Global
Page | 7
Sector Thematic: Real Estate - Retail
Indian malls replicate the global story
Global brands see malls’ presence for premium positioning
We have done a detailed 10-yr mapping of the Indian malls and have bucketed some
of the key occupiers into different segments. We have seen a ramp-up of significant
multinational presence in malls over the past 8-10 years, replicating the global malls'
story. The long-term growth of these categories is highlighted in the exhibit below.
We have seen malls re-inventing themselves during this period and using multiple
levels to optimize rental CAGR by (1) attracting the luxury brands with high revenue
share paying capacity, (2) optimizing shift towards performing brand and cutting
down on non-performing ones and (3) expanding or making more space available for
a new format like automobiles, experiential F&B, etc.
Categorywise revenue growth
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
FY16-
19 CAGR*
Apparel 64% 74% 30% 29% 59% 13% 11% 0% 20%
Beauty & spa 10% 2% 4% 14% 58% 5% 0% -7% -1%
Department store 21% 19% 73% 17% 12% 17% 10% 14% 21%
Entertainment 30% 60% 49% 9% 23% 12% 12% 23% 24%
Food & beverages 43% 32% 23% 16% 14% 9% 18% -10% 22%
Footwear 19% -7% 27% 23% -4% 8% 4% 8% 10%
Grocery 58% 58% 19% 4% 82% 72% 7% 14% 50%
Jewellery & accessories 33% 16% 36% 14% 1% 8% 22% 16% 23%
Total 34% 26% 37% 16% 22% 22% 13% 11% 26%
Source: Ace Equity, HSIE Research *Same-store CAGR
Some of the retailers we have considered
Apparel Others* Departmental
stores F&B Footwear Beauty & spa Grocery
Entertainme
nt
ABFRL Titan Central Barbeque-
Nation Bata Enrich
Big
Bazaar Inox
Arvind TBZ Brand Factory CCD Clarks Health &
Glow Metro PVR
Bestseller Malabar
Gold Lifestyle Pizza Hut Adidas Kaya Spencer's
MAS Senco Gold EasyDay KFC Nike
TCNS DA Milano Max McDonald's Reebok
Biba Baggit Shoppers Stop Dominos
Gini & Jony Hidesign Trent Dunkin
Donuts
H&M Samsonite Marks & Spencer Starbucks
Zara VIP
Levi’s Wildcraft
Tommy
Hilfiger
Home
Town
Ethos
Fossil
Bose
Archies
Source: Ace Equity, HSIE Research *Includes Jewellery, Watches, Electronics & accessories etc.
Across categories, we have
looked at some of the
retailers, which occupy a
substantial part of the
mall space
Relaxation of FDI limit in
retail has led to many
global brands
establishing/expanding
their presence
Like their global peers,
Indian mall developers too
have curated their malls as
an experience-led shopping
center and proactively
changed mix of retailers in
line with change in
consumption shift
We believe mall operators
would reinvent themselves
to accommodate changes
in consumption habits,
brought about by the
pandemic
Page | 8
Sector Thematic: Real Estate - Retail
High rentals as percentage of sales; few categories report losses Rentals are not the only determining factor for the brands' malls presence. In the
exhibit, we have highlighted the rental costs as a percentage of sales. As long as
consumption is growing, the EBITDA margins are resilient for most categories, as per
the historical financials. Many of the categories have healthy EBITDA margins,
although, in the near term, the impact of COVID-19 may result in lower profits or
losses for a few brands. Looking at the sustainability of the malls over mid to long
term, landlords have amicably given rentals discounts with most of the tenants
shifting to revenue share model until consumption reverts to normal pre-COVID
levels. We believe the brands have a long-term strategy for India, and many of the
categories may continue to do business from malls. Some of the vulnerable ones may
see a reduced footprint, viz., departmental stores and grocery.
Rent as % of sales
FY13 FY14 FY15 FY16 FY17 FY18 FY19
Apparel 6 9 9 11 11 10 11
Beauty & spa 8 7 12 11 11 11 10
Department store 5 7 7 7 7 7 7
Entertainment 14 16 17 19 19 19 18
Food & beverages 8 11 10 10 11 10 11
Footwear 8 8 9 9 8 8 8
Grocery 3 4 3 6 6 6 6
Jewellery & accessories 2 2 2 2 2 2 2
Total 4 5 6 7 7 6 6
EBITDA margin (%)
FY13 FY14 FY15 FY16 FY17 FY18 FY19
Apparel 11 8 9 8 8 9 9
Beauty & spa (12) (6) 2 2 (0) 2 0
Department store 6 7 8 8 8 9 9
Entertainment 14 15 13 16 13 16 19
Food & beverages 11 10 7 7 7 13 14
Footwear (8) 7 7 5 9 13 16
Grocery (14) (10) (6) 0 3 4 4
Jewellery & accessories 8 7 7 6 7 8 8
Total 4 5 6 6 6 8 8
PAT margin (%)
FY13 FY14 FY15 FY16 FY17 FY18 FY19
Apparel 2 (1) 0 2 3 3 4
Beauty & spa (18) (1) 0 (1) (3) (2) 3
Department store 2 2 3 2 3 4 4
Entertainment 5 4 2 6 4 7 7
Food & beverages 1 (1) (4) (3) (3) 2 3
Footwear (24) 7 2 1 3 6 10
Grocery (18) (9) (9) (2) 1 (0) 3
Jewellery & accessories 5 4 4 3 4 5 5
Total (1) 1 1 2 2 3 4
Source: Ace Equity, HSIE Research
Categorywise vulnerability
Category Vulnerability Category Vulnerability
Apparel High Food & beverages Low
Beauty & spa Low Footwear Medium
Department store High Grocery High
Entertainment High Jewellery & accessories Medium
Source: HSIE Research
Our analysis of rental
expense of retailers over
the past 10 years suggests
rental is not the only
determining factor for their
mall presence
Almost all categories had
seen healthy EBITDA
margins despite sizeable
rentals
Curtailed mall operation
would erode the topline of
malls and, consequently,
impact their margins
Typically, mall operators
charge minimum guarantee
(MG) rent to retailers and
once consumption rises
above pre-defined
threshold level, they
receive part of the revenue
(revenue-share)
To provide relief to the
retailers, mall operators
have given waivers on the
fixed rental portion and
have switched to revenue
share until consumption
recovers to the pre-COVID
level
Page | 9
Sector Thematic: Real Estate - Retail
Mall rental growth highly linear to consumption growth
We have tried to map the segment wise consumption growth (for larger mall
categories) with PML consumption growth and find high/significant linear
relationship for a few categories, viz., apparel, grocery, entertainment, etc. The rising
consumption share, along with rising income levels, may lead to a higher revenue
share than MG for the categories. PML may witness a higher overall rental CAGR. In
terms of rising aspirations, a post-COVID trend seems to be emerging of consumers
looking to ramp up spends on personal wellbeing and consumption. This trend
bodes well for PML.
Retailers growth and PML growth (%)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Apparel 86 64 74 30 29 59 13 11 0
Beauty & spa 7 10 2 4 14 58 5 0 (7)
Department store 110 21 19 73 17 12 17 10 14
Entertainment 30 30 60 49 9 23 12 12 23
Food & beverages 26 43 32 23 16 14 9 18 (10)
Footwear 15 19 (7) 27 23 (4) 8 4 8
Grocery 167 58 58 19 4 82 72 7 14
Jewellery & accessories 47 33 16 36 14 1 8 22 16
Total 57 34 26 37 16 22 22 13 11
PML consumption growth YoY 80 66 97 57 22 10 7 9 9
Source: Ace Equity, HSIE Research
Correlation coefficients
Source: Ace Equity, HSIE Research
We have looked at the
revenue growth of some of
the brands/categories that
are mall occupiers or have
large mall presence
Revenue growth of these
retailers and consumption
growth at PML malls have
high correlation across
categories
We expect PML to benefit
from rise in consumer
spend after consumption
normalizes
(0.40)
(0.20)
-
0.20
0.40
0.60
0.80
1.00
Ret
ail
ers
tota
l gro
wth
Ap
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rel
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tert
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ear
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ries
Page | 10
Sector Thematic: Real Estate - Retail
Apparel Beauty & spa Entertainment
Source: Ace Equity, HSIE Research Source: Ace Equity, HSIE Research Source: Ace Equity, HSIE Research
Departmental stores Food & beverages Footwear
Source: Ace Equity HSIE Research Source: Ace Equity
Grocery Jewellery & accessories Overall
Source: Ace Equity HSIE Research Source: Ace Equity
y = 0.9856x + 0.1327
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0% 20% 40% 60% 80%
y = -0.2046x + 0.1612
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
0% 20% 40% 60% 80%
y = 0.528x + 0.1301
0%
10%
20%
30%
40%
50%
60%
70%
0% 20% 40% 60% 80%
y = 1.3375x + 0.1636
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
0% 20% 40% 60% 80%
y = 0.4167x + 0.0991
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0% 20% 40% 60% 80%
y = 1.101x + 0.0188
0%
20%
40%
60%
80%
100%
120%
0% 20% 40% 60% 80%
y = 0.3328x + 0.097
-20%
-10%
0%
10%
20%
30%
40%
50%
0% 20% 40% 60% 80%
y = -0.0028x + 0.1039
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
0% 20% 40% 60% 80%
y = 0.4892x + 0.1279
0%
10%
20%
30%
40%
50%
60%
0% 20% 40% 60% 80%
Page | 11
Sector Thematic: Real Estate - Retail
Global capital also wants to have a pie in this consumption
growth story–either directly or through partners
Blackstone–Nexus malls and Xander–Virtuous Retail Malls are early
believers/investors in the Indian consumption story and have been ramping up
presence in Indian malls, both organic and green field. The strategy is to (1) invest in
the consumption play, (2) shift unorganized demand to organized, and (3) bring
better experiential flavor to consumer demand. These players are looking at
distressed opportunities in the market brought about by the pandemic. We have seen
Blackstone monetizing stakes in the listed Office REITs whilst PML is looking at
raising funds for any future inorganic acquisition opportunities. Consolidation may
bode well for the sector as large players stand to benefit at the current cap rate of 9.5-
10%. The future compression in cap rate once consumption recovery pans out shall be
positive for the sector.
Name Location Size (mn sqft) Latest
occupancy
Revenue CAGR
FY17-19
Nexus (Blackstone)
Ahmedabad One Ahmedabad 0.7 92% 42%
Mall of Amritsar Amritsar 0.5
Westend Pune 0.4 93%
Seawoods MMR 1.0 93%
Elante Chandigarh 1.2 99% 10%
Treasure Island Indore 0.4 93% 9%
Next Treasure Indore 0.2 82% 136%
Esplanade Bhubaneswar 0.5 99%
Pavillion Pune 0.4 98% 20%
Nexus total
5.3
Virtuous Retail (Xander, APG)
VR Punjab Chandigarh 1.0 94% 21%
VR Bengaluru Bengaluru 0.9 90% 73%
VR Surat Surat 0.6
VR Chennai Chennai 1.0 90% 73%
VR Ambarsar Amritsar 1.0 60%
VR Nagpur Nagpur 0.7
Virtuous Retail total 5.2
Source: CRISIL, ICRA, India Ratings, HSIE Research
The Indian consumption
story has attracted a
sizable capital from global
funds
Nexus Malls, backed by
Blackstone, has nine retail
assets, spanning 5.3 msf
Virtuous Retail, backed by
APG and Xander group,
has six assets with gross
leasable area of 5.2 msf
CPPIB has entered into
partnership with Phoenix
Mills to develop three
malls across India
GIC has also invested in
operational assets
Page | 12
Sector Thematic: Real Estate - Retail
Indian large realty players not behind – with marquee investors
in tow
PML, DLF, Prestige Estate, Oberoi Mall and Brigade Enterprises are mall asset plays
in the Indian context. In terms of REIT play, only PML seems to be pure retail mall
play with likely REIT opportunity potential once new under-construction malls
become operational. DLF, PEPL, Oberoi and Brigade have small rental income from
the malls. Oberoi and PEPL have plans to expand the current mall portfolio.
Name Location Size (mn sqft) Latest occupancy Revenue FY17-19 CAGR
Phoenix Mills
HSP & Palladium MMR 0.77 95% 8%
PMC Bengaluru 1.00 97% 10%
PMC Pune 1.19 96% 10%
PMC Mumbai 1.14 92% 1%
PMC & Palladium Chennai 1.22 96% 9%
Phoenix United Lucknow 0.33 86% 13%
Phoenix United Bareilly 0.31 91% 9%
Palassio Lucknow 0.90
Phoenix Mills total
6.86
DLF
Mall of India Noida NCR 1.97 100%
DLF Avenue (Formerly Saket) NCR 0.52 99% -3%
Promenade NCR 0.46 100% 5%
Cyber Hub NCR 0.46 99%
Emporio NCR 0.31 97% 3%
City Centre NCR 0.19 74%
Chanakya NCR 0.19 93%
South Square NCR 0.06 99%
Capital Point NCR 0.09 99%
DLF total
4.25
Prestige Estate
Forum Sujana Hyderabad 0.82 100%
Forum Fiza Mangalore 0.67
4%
Forum Vijaya Chennai 0.64
Forum Shantiniketan Bengaluru 0.62 94%
Forum Celebration Udaipur 0.39
Forum Mall Bengaluru Bengaluru 0.35
Forum City Centre Mysore 0.31 100%
The Forum Neighbourhood Bengaluru 0.29
17%
UB City Retail Bengaluru 0.10
Prestige Mysore Central Bengaluru 0.06
Prestige Mysore Central Bengaluru 0.02
Prestige Estate total
4.27
Brigade Enterprise
Orion Mall @ Brigade Gateway Bengaluru 0.83
9%
Orion Avenue Mall Bengaluru 0.15
Brigade Vantage Chennai 0.06
Brigade Total
1.04
Oberoi Realty
Oberoi Mall MMR 0.55 97%
Oberoi Realty total
0.55
Source: Company, CRISIL, ICRA, India Ratings, HSIE Research
Indian developers have
also capitalized on India’s
consumer story
Phoenix Mills, the largest
mall operator in the
country, has nine
operational malls in six
cities
DLF has nine retail assets
in the National Capital
Region (NCR)
Other large players are
Prestige Estate, K Raheja-
backed Inorbit, Brigade
Enterprise and Oberoi
Realty
Page | 13
Sector Thematic: Real Estate - Retail
India still underpenetrated–malls remain mostly urban play
Malls in India are positioned as urban-centric consumption plays. High per capita
urban income and propensity to consume makes it an attractive marketplace. The
upcoming supply and mall stock are highlighted in the exhibit below. As per
Anarock, new mall supply of 69/31malls is expected in Tier1/Tier 2 cities over CY20-
22E although COVID-led disruptions may put a spanner in the construction works,
with timelines extending by 1-2 years.
City-wise upcoming mall supply (CY20-22E) City Supply (msf) No of Malls Average Mall Size (msf)
MMR 7.8 18 0.43
NCR 7.5 13 0.58
Hyderabad 5.5 12 0.46
Bengaluru 5.9 10 0.59
Chennai 4.3 9 0.48
Pune 2.6 4 0.65
Kolkata 1.9 3 0.63
Total Tier 1 35.5 69 0.51
Ahmedabad 3.2 6 0.53
Lucknow 2.5 4 0.63
Nagpur 0.9 2 0.45
Surat 0.7 2 0.35
Others 6.2 17 0.36
Total Tier 2 & 3 13.5 31 0.44
Total 49.0 100 0.49
Source: Anarock, HSIE Research
Current mall stock–49.6mn sqft
The mall stock is expected to double from 49.6mn sqft to almost 100mn sqft over the
next 3-4 years.
City Mall Stock
(msf)
Mall space per
person (sf) Vacancy
Avg. Rental
(Rs/sf/month)
NCR 14.8 3.2 14% 250-340
MMR 11.8 1.0 7% 200-250
Bengaluru 7.6 0.9 15% 120-225
Chennai 6.0 1.3 15% 70-150
Pune 4.0 1.3 10% 120-170
Hyderabad 2.8 0.4 15% 100-160
Kolkata 2.6 0.6 8% 130-200
Total 49.7
Source: Anarock, HSIE Research
Despite the substantial
increase in the number of
malls in the past decade,
India remains an under-
penetrated market
Per capita availability of
mall space is significantly
lower than the global
average; hence, there is
ample opportunity to grow
As per earlier reports by
Anarock, 100 new malls,
spanning 49 msf were to
open during CY20-22,
doubling the existing mall
stock
However, considering the
disruption, new supply
might get delayed as
developers await
consumption recovery
Page | 14
Sector Thematic: Real Estate - Retail
Significant Capex plans for Tier 1 may slow down, face delays
Despite COVID-19 pandemic, the Capex programs of large real estate developers
remain as per plan. Whilst most of the upcoming supply has financial closure in
place, banks are reassessing/considering (1) risks attached with lower rentals post-
pandemic and (2) longer timelines to recovery. Some of the developers are seeing
reduced LTVs by banks, and hence developers may need to bring in a higher share of
equity into the projects. LRD market is also not conducive as financial institutions
find it challenging to value malls at the current rental run rate (20-25% of the pre-
COVID level). Hence, determining LTV and resultant debt limits will be an uphill
task, based on the new LTVs. Developers may retain their mall Capex plans, but
timelines could get pushed by another 1-2 years.
Upcoming large malls
Project Name City Leasable Area (msf) Capex (Rs mn)
Phoenix Mills
PMC Wakad Pune 1.1 8,500
PMC Hebbel Bengaluru 1.2 18,000
PMC Indore 1.0 7,500
Palladium Ahmedabad 0.7 8,000
Phoenix Mills total
4.0 42,000
Prestige Estate
Falcon City Bengaluru 1.3 7,620
Forum Thomsun Kochi 1.1 6,360
Forum Rex Walk Bengaluru 0.2 1,440
Prestige Estate total
2.6 15,420
Oberoi Realty
Skycity MMR 1.6 8,000
Worli MMR 1.0 5,080
Oberoi Realty total
2.6 13,080
Brigade Enterprise
Orion Uptown Bengaluru 0.27 1,935
Brigade Enterprise total
0.27 1,935
Source: Anarock, HSIE Research
Prominent players have
planned considerable capex
for new malls
Despite the pandemic, they
are confident of Indian
consumption story and
continuing with their
capex plan
Majority of these new
projects have financial
closure
However, reassessment of
risk by lenders,
construction challenges
and delayed recovery could
push their timelines by 1-2
years
Page | 15
Sector Thematic: Real Estate - Retail
FY21/22E to be a tough year for the retail mall sector
Hit by the pandemic, most of the malls were closed for 2-3 month and have now
gradually opened. Developers have extended reliefs to the tenants to survive
during these times.
Malls have the running debt as LRDs, whose serviceability is contingent on the
rental collections. Whilst large organized retail mall operators with solid financial
backing and liquidity may sustain these near-term headwinds, a few cases may
face distress.
The RBI's recent policy allows one-time corporate restructuring for segments hit
by COVID-19, which may provide some relief to the retail sector as well. We
await the detailed RBI policy but believe that COVID-19 is the key factor for mall
closure and, hence, the sector may be a beneficiary of OTR. Now it depends on
banks whether they will extend the same to stronger operators as they may have
to take a 15% initial hit on loan value.
In the exhibit below, we highlight rental relief offered to tenants by the landlords.
We expect FY21E rent collections to be in the range of 25-55% across mall
operators.
Rent concessions given to retailers could hurt mall operators in the short term
Company GLA (msf) During the lockdown After the lockdown
Phoenix 6.86
45-55% of MG waived off; discussion
with multiplexes & F&B operators are
still on; rent to be recovered in a
staggered manner over July to
September
Concessional MG on case to case basis
and higher rev share for 1-2 quarter; will
return to original rental terms once
retailers reach 75-80% of last year
consumption
Prestige 4.27 A complete waiver on rent; CAM
charges covered as actual
Discussion with retailers are still on,
clarity by mid-August
DLF 4.25 MG waived off for the period with
certain conditions
MG at a concessional rate with a higher
revenue share from retailers
Brigade 1.04 50% waiver on rent; CAM charges
recovered at a cost
Reduced MG rent and higher revenue
share till September
Oberoi 0.55 Retailers did not pay anything during
1QFY21 Still in wait and watch mode
Nexus 5.30 Have given a concession to retailers
on case to case basis
Further relaxation to depend on
consumption recovery
Xander 5.20 Like the other mall operators, have
given a concession on MG to retailers
Higher revenue share with reduced MG
for the rest of the year
Total 27.47
Source: Company, Industry sources, HSIE Research
Pre-COVID revenue share
Category Revenue share
Fashion 12-15%
Supermarket 3-5%
Electronics 2-4%
Department stores 8-10%
International department stores 7-8%
F&B (smaller counter) >15%
F&B (speciality restaurant) 10-15%
Multiplexes 6-7%
Jewellery 2-3%
Watches 5%
Services & spa 10-15%
Source: Industry sources, HSIE Research
Malls across the country
have reopened after being
shut down in the lockdown
period
To support retailers, malls
gave rent waivers during
the lockdown and have
reduced MG until
consumption reverts to
pre-COVID level
This would impact ability
of mall operators to service
their LRD loans (backed by
rentals)
Large developers, with
strong balance sheets,
could sustain the decline in
rental collection but
developers with weak
financials may feel the
stress
Page | 16
Sector Thematic: Real Estate - Retail
Tough times may not last; credit agencies remain investment
grade on malls
For large malls, we have highlighted rating rationale as per the reports available from
the credit rating agencies. We have collected data for 24 rated malls, of which about
17 have A rating (71% of the universe). Of the total 47 malls data that we have, the A-
rated universe is 36%. The detailed key rationale for each of the malls is highlighted
in the exhibit below and covers both unlisted and listed players, viz., Blackstone,
Xander, DLF, Prestige, and Phoenix.
The credit rating of malls
SN. Mall name/
Promoter/City
Credit Rating/
(FY19 Rental)
Rating Rationale Highlights
1
Ahmedabad One
(0.72msf)
Blackstone
Ahmedabad
CRISIL
A+/Negative
'Negative' outlook reflects possible impacts of the Covid-19 pandemic
Developing phase-2 (2lsft); currently developing the 1st floor of 3 floors. Construction is
expected to be completed by Aug-20 at a for Rs 96 crore.
Vacancy is 8.2% as of Aug-19; temporary phenomenon as vacant space is under fit-out;
maintained ~100% occupancy for the 5 years through FY18
Top 10 tenants occupy close to 52%
Prime area but competition from established main streets in the city
~50% of the agreements would be up for renewal over the next 3 fiscals
D/E = 1.44 & Interest coverage = 4.74 (FY19)
DSCR of 1.6; DSRA of 1 month of interest & 1 quarter of principal
2
Westend (0.42msf)
Blackstone
Pune
ICRA A-/
Negative Watch
'Negative Watch' reflects possible impacts of the Covid-19 pandemic
Favourable location - Aundh is an affluent suburb in Pune; nil competition due to absence of
nearby malls. Proximity to the M-P expressway and CBD
Low renewal risk as no leases coming up over the next three years
Developing an IT park above the mall with a total leasable area of ~2.5 lsf; ~18% of the project
cost left to be incurred; commitments at ~45%
Repayment towards promoter NCDs and redemption of preference shares would require Rs.
160 crores by December 2021 and the same is expected to be funded by future LRD against the
rentals of the IT park.
Top five tenants contribute ~31% of rental revenue
Debt/EBITDA = 9 & Interest coverage = 1.3 (FY19)
DSCR of 1.5; DSRA covering two months of debt
3
Seawoods Grand
Central (0.98msf)
Blackstone
Navi Mumbai
BWR BBB-
/Stable
Nascent stage of the mall operations, weak coverage ratios, high leverage
SGC is India's largest Transit Oriented Development (TOD)
Average monthly footfall for the period FY19 was around 7.01 lakhs, and for the period Apr-19
to Jan-20 was around 8.47 lakhs.
330 stores, 1800 parking spaces and 2100 food court seating
D/E increased to 6.76 times as of Dec-2019 on account of the additional debt availed for Phase II
payments
The proceeds of the NCDs have been used for the purchase of the Seawoods Grand Central
mall from L&T
4
Elante (1.15msf)
Blackstone
Chandigarh
CRISIL
A+/Negative
'Negative' outlook reflects possible impacts of the Covid-19 pandemic
It owns and operates the Elante Mall, the Elante office complex, and the Hyatt Regency hotel in
Chandigarh
53% of the mall leases to come up for renewal over the next 3 years
Top 10 tenants occupying around 40% area and contributing to 27% of MG
New agreements with tenants for around 12% of the total leasable area over the 20 months
through January 2020 were entered with 30% MTM
Office complex (4.24 lsf) - 2.99lsf has been sold, while about 55% of the remaining space was
leased as of Jan-20
Comfortable LTV of around 40%
DSRA covering three months of debt servicing obligations.
D/EBITDA = 1.57 & Interest coverage = 1.52 (FY19)
5
Treasure Island
(0.4msf)
Blackstone
Indore
BWR A-
(SO)/Stable
(Withdrawn
May-19)
Joint Venture between Blackstone Group & Chhabra Group
It was under significant refurbishment during FY15 and FY16 and reopened to the public in Q4
FY16
105 stores, one multiplex, 500 parking spaces and 225 food court seating
Page | 17
Sector Thematic: Real Estate - Retail
SN. Mall name/
Promoter/City
Credit Rating/
(FY19 Rental) Rating Rationale Highlights
6
Next Treasure
(0.2msf)
Blackstone
Indore
ICRA BBB+/
Negative Watch
Negative Watch' reflects the possible impact of the COVID-19 pandemic.
The favourable location of the mall
The occupancy levels of the mall remain ~82% as on Mar-20.
The company could not tie up any incremental leases between Oct-18 and Aug-19 on account of
a freeze on new leasing due to a pending litigation
Started new leasing tie-ups for the balance area, which is expected to improve the rental
revenue. Leasing is expected to be ~95% by end-FY21.
No major renewals are falling due over the next three years.
Faces competition from similar retail assets & established main streets.
Top five tenants contribute ~73% of rental revenue.
Weak profitability and consequently debt coverage indicators in past
D/EBITDA = 11 and Interest coverage = 0.8 (FY19)
DSCR of 0.7; DSRA covering two months of debt
7
Esplanade (0.5msf)
Blackstone
Bhubaneshwar
ICRA A-
/Negative
Watch
Negative Watch' reflects the possible impact of the COVID-19 pandemic.
The favourable location of the mall and resultant healthy footfalls
No major renewals due in the next one and a half years,
The company holds office and hotel space inventory located on the same premises and the
erstwhile promoters currently manage it.
Top five tenants occupying close to 56%
Competition from other 1 existing and upcoming malls in Bhubaneswar
Cumulative cash flow coverage indicator remains adequate
D/EBIDTA = 10.9 & Interest coverage = 1.3 (FY19)
DSCR of 1,3; DSRA covering 2 months of debt
8
Pavillion(0.4msf)
Blackstone
Pune
IND AA-/Stable
Mixed-used development project - office space (0.87msf), a mall (0.43msf), a 415-key hotel &
windmills; contributing 51%, 31%, 17% and 1% to revenue, and 29%*, 52%, 17% and 1% to the
EBITDA
FY20 Occupancy rate for office space – 100%, mall - 97-98% & hotel – 67%
Not availed any moratorium; LTV was below 35% at FY20
Gross and Net leverage is likely to remain acceptable around 3.5x and 2.5x, respectively, in
FY21 (FY20: 2.4x, 1.9x)
DSRA covering three months of interest servicing for the bonds
DSCR to remain above 1.40x over FY21-FY25
Top four lessees account about 52% of the combined leased area
9
VR Punjab (1msf)
Xander & APG
Chandigarh
IND BBB-
(SO)/Stable
An exclusive charge secures LRD facility over the mall
The additional available leasable area of 0.64 million sf) is located in Mohali
As on May-19, 84.9% of the area (including under fit-outs) was occupied
5-6% of the leased area is coming up for renewal till FY22.
Mall houses over 150 reputed retailers and has nine PVR screens
LTV at ~40%; DSRA covering around four months of payment obligations
Both DSCR and LTV ratios are in line with the benchmark levels expected
10
VR Bengaluru (0.47
msf)
Xander & APG
Bengaluru
VR Chennai (0.95 msf)
Xander & APG
Chennai
CRISIL
BBB+/Negative
Watch
Healthy revenue is generated by the Bengaluru and Chennai malls backed by healthy
occupancy and reputed clientele, and moderate debt protection metrics
Bengaluru Mall is located in the Dyvasandra Industrial Area and has 0.47msf retail space,
0.05msf office space, & a 54-room hotel. The Chennai mall is in Anna Nagar and has 0.95msf
retail space, 0.02msf in office space, and a 20-room hotel.
The Bengaluru assets have been operational since October 2015 and have healthy occupancy of
90% in the retail space, 93% in office space, and 65% in hotel space.
In Chennai, the retail mall and office space became operational in Jun-18 and have an
occupancy of 90% and 82%; hotel to commence operations shortly.
Less than 5% of the leased area is coming up for renewal over the next 3 years.
DSCR is expected to be above 1.0 time over the medium term: ICR 0.52 (FY19)
Sugam has availed moratorium from its lenders for part of its bank debt
11
VR Ambarsar
Xander
Amritsar
ICRA A(SO)/
Negative Watch
Healthy cash cover (net rental/interest) for the senior NCD
ISRA equivalent to one quarter of interest payment.
The moderate occupancy level of 60% as on Jun-19
Around 35% of the leases are falling due for rental escalation within the next 22 years
Low occupancy has led to under-recovery of CAM affecting the operating profits.
Located within the new city centre of Amritsar, adjoining the high-end residential areas; spread
over 8 floors of the shopping complex
Refinancing options available for rental assets in the form of LRD loans.
The mall has a food court (seating capacity of 800), multiplex (6 screen facility operated by
Satyam- INOX currently), departmental stores (Lifestyle, Pantaloon, etc.), retails stores (over
120 outlets), hypermarket (Big Bazaar), and entertainment zones.
D/E = 12.7 and Interest coverage = 0.2 (FY19); D/EBITDA = 44
Page | 18
Sector Thematic: Real Estate - Retail
SN. Mall name/
Promoter/City
Credit Rating/
(FY19 Rental)
Rating Rationale Highlights
12
DLF Avenue,
DLF Promenade
& DLF Emporio
DLF
NCR
ICRA AA-
/Stable
ICRA has taken a consolidated view of DCCDL and all its assets
Comfort from 2 strong promoters – DLF & GIC
The operational leasable area of the group increasing to 30.3 mn. sq. ft. in FY20
DCCDL's office portfolio has remained mostly unaffected by COVID.
Group's retail portfolio 3.9msf has been significantly impacted.
Current organic development potential of DCCDL stands at ~29.5 mn. sq.ft, over and above the
on-going development of ~ 7.1 mn sq.ft.
Sufficient liquidity coupled with management's stated intent to maintain overall debt at the
current level resulting in a moderation of NOI/debt to 4x.
13
Forum Sujana
(0.82msf)
Prestige
Hyderabad
Forum Shantiniketan
(0.62msf)
Prestige
Bengaluru
Forum City Centre
(0.31msf)
Prestige
Mysore
ICRA A+(CE)/
Stable
Corporate guarantees provided by Prestige Estate Projects Limited to each
Prestige Group currently operates 10 malls (4.3msf); strong track record
The company has significant repayments over the next 2.5 years, at close to Rs. 2,000 crore per
annum, at the Group level. The company will be reliant on refinancing to the extent of
corporate debt and construction loans.
Nevertheless, the annuity income portfolio provides financial flexibility to PEPL because, at the
Group level, the leverage is moderate with debt-to-annualised rental income of 4.4 times, which
mitigates the refinancing risk to an extent.
Company has access to undrawn LRD loan of over Rs 400 crore apart from other sanctioned
construction finance and Capex loans which are available for drawdown for the identified
projects.
Sujana: moderately high leverage for Rs 5.5bn LRD of 6.3 times of annual gross rental income.
Debt coverage metrics to remain comfortable. It is located in Kukatpally. It enjoys steady
demand from a large catchment of the residential area surrounding the mall. Healthy
occupancy of ~100% over the past three years. Interest coverage = 2.8; D/EBITDA = 3.2; DSCR =
1.1.
Shantiniketan: With many IT/ITES offices situated nearby, and dependent residential
developments, Whitefield has become a significant micro-market within the Bangalore RE
market. The demand is expected to be localised and dependent on residents and people
working in Whitefield/ITPL/Mahadevpura. Interest coverage = 0.82; D/EBITDA = 45.48; DSCR =
0.82.
Forum City Centre: The company has also entered into a lease agreement with PVR, with the
rent commencement expected during FY21. DSRA covering three months of debt obligations.
~100% occupancy over the past 2 years. Interest coverage = 1.1; D/EBIDTA = 9.3; DSCR = 0.3.
14
PMC Bengaluru (1msf)
Phoenix Mills
Bengaluru
CRISIL A/
Negative Watch
Negative Watch' reflects the possible impact of the COVID-19 pandemic.
51:49 subsidiary of TPML and CPPIB
Group has availed moratorium from its lenders for 6 m
Stable cash flow supported by healthy mall occupancy (90% over 4 years) and a diverse and
reputed clientele, and strong debt protection metrics
Successfully renewed/entered into new agreements with tenants for 19% of the total leasable
area during FY19, at significant MTM gains.
Large scale and attractive catchment area
70% of the agreements will be coming up for renewal over the next 3 fiscals.
Top ten tenants occupy 39% of the area
DSCR of well over 1.3 times over the tenure of the debt. DSRA of Rs 15 crore, to be maintained
throughout the loan tenure.
DSCR: 1.68, D.E = 0.97, Interest Coverage = 3.16 (FY19)
15
PMC Pune(1.2msf)
Phoenix Mills
Pune
CRISIL A/
Negative Watch
Negative Watch' reflects the possible impact of the COVID-19 pandemic.
Maintained occupancy of over 90% for the past three fiscals
Successfully renewed/entered into new agreements with tenants for 11% of the total leasable
area during fiscal 2019, with MTM gains
Top ten tenants occupy only around 32% area, ensuring low concentration
DSRA of Rs 29.5 crore which is equivalent to 3 months of debt servicing
Well-diversified clientele and had healthy occupancy of 96% as of March 2019.
Substantial 53% of agreements will be up for renewal in the three fiscals
DSCR = 1.22; D:E = 2.91, Interest Coverage = 2.38 (FY19)
Page | 19
Sector Thematic: Real Estate - Retail
SN. Mall name/
Promoter/City
Credit Rating/
(FY19 Rental)
Rating Rationale Highlights
16
PMC Mumbai
(1.14msf)
Phoenix Mills
MMR
IND A-/
Negative Watch
Negative Watch' reflects the possible impact of the COVID-19 pandemic.
Phoenix Market City (1.14msf), Mumbai, and office space, Art Guild House (AGH – 0.4msf, 90%
occupancy).
DSRA of INR200 million to cover three months of interest and principal
As on 31 December 2019, about 94% of the PMC leasable area occupied.
Ind-Ra has assumed that AGH would achieve occupancy of 95% by FY21-22
LTV at 35-40% at end-FY20
Company has availed RBI moratorium.
17
PMC & Palladium
(1.22msf)
Phoenix Mills
Chennai
IND BBB+/
Negative Watch
Negative Watch' reflects the possible impact of the COVID-19 pandemic.
In Ind-Ra's stabilised scenario, the net cash flow has an adequate DSCR of 1.15x-1.20x. LTV of
43.56%. 6-month moratorium availed
DSRA of 3 months of interest and principal obligation (about INR303mn)
PMC is one of the largest malls in Chennai with occupancy of 98.5%.
Rental rates are higher than the average rates in the micro-market In FY19
Rental income, consumption and trading density of the mall stood at INR1.53 billion, INR11.07
billion and INR1,394/sf/month, respectively. Moreover, rental income, consumption and trading
density increased at a CAGR of 12.1%, 9.8% and 4.4%, respectively, over FY14-FY19.
10 marquee anchor tenants (including multiplex), nine mini-anchor tenants and 202 inline
tenants (including hypermarket, entertainment centre and food court) that contribute 17.3%,
6.4% and 76.3% to Ind-Ra's base case rental
The top 20 tenants contribute 36.9%
Total rental income accounting for only 13.7% of the total trading consumption of the mall,
Classic Mall is one of the most profitable malls for the tenants.
The mall is well connected with the city's CBD (5km)
18
Phoenix United
(0.35msf)
Phoenix Mills
Lucknow
CRISIL A-/
Negative Watch
Negative Watch' reflects the possible impact of the COVID-19 pandemic.
86% occupied as of March 2019. Top ten tenants occupy close to 50% area.
Successfully renewed/entered into new agreements with tenants for 28% of the total leasable
area during FY19, with MTM gains. Availed 6m morat.
A significant proportion of total rentals is generated through RS income
There are few large format malls currently being developed in Lucknow, which may affect
footfalls that PUM enjoys and impact retailers' income.
45% of the agreements coming up for renewal over the 3 fiscals through 2022.
DSRA covering one-quarter of debt servicing obligation. (Rs 3.5 cr)
Upcoming annual debt obligation of Rs 7-8 crore in the three fiscals
DSCR = 1.51; D:E = 0.97, Interest Coverage = 3.16 (FY19)
19
Phoenix United
(0.31msf)
Phoenix Mills
Bareilly
CRISIL BBB/
Negative Watch
Negative Watch' reflects the possible impact of the COVID-19 pandemic. Availed 6m morat.
About 91% of the leasable area had been leased out as of March 2019
About 18% of the area was up for renewal in fiscal 2019
DSRA covering one-quarter of debt-servicing obligation – Rs 4.13cr
Significant proportion rentals are generated through RS income which is not as stable as
guaranteed rentals.
56% of the agreements will be coming up for renewal over the next three fiscals
DSCR was 1.04 times in FY19 and is expected to remain above 1.0 time
Repayment obligation of Rs 7-9 crore per fiscal in the three fiscals through 2022
D:E = 2.36, Interest Coverage = 1.51 (FY19)
Source: CRISIL, ICRA, India Ratings, Company, HSIE Research
Rating distribution among malls
Rating No of Rating
AA- 4
A+ 4
A 3
A- 6
BBB+ 4
BBB 1
BBB- 2
Not rated 23
Total 47
Source: CRISIL, ICRA, India Ratings, Company, HSIE Research
Page | 20
Sector Thematic: Real Estate - Retail
Key risks
Work from home –our interactions with large occupiers suggest there could be a
structural shift to work from home. This shift has a further implication; the
millennials and medium to bulge bracket employees could move to Tier 2 cities
or go back to their hometowns. Their move may have a catastrophic impact on
the urban population and consumption. The second-order impact may result in
lower rents and rental cap rate expansion due to the risk associated with high
Capex asset class.
Sustained delay in footfall recovery - Hit by the pandemic, consumers have got
used to or developed the habit of shopping online. Some of the hardcore mall
crowd has also shifted to online shopping. Whilst we believe that few categories
remain vulnerable and may improve profitability by moving a higher share
online, others like luxury categories (jewelry and watches) may not. Multiplexes
may gradually open, and consumers would once again prefer visiting them for
the experience they provide. OTT may not replace movie binging. Footfall trends
are still emerging, and any structural change in the shift from brick and mortar
retail to online may have a disruptive impact on the mall NOI growth.
Lenders remain wary of lending to retail malls - We have seen instances of
projects where financial closures have happened, and banks have pulled back
disbursals as they expect most of the malls' incomes to halve in FY21E. This may
result in lower debt security cover and higher implied LTV ratio. Some of the
banks' credit risk departments have laid down stringent conditions on lending to
retail malls, which could lead to drying up of bank funds for malls. And also lead
to lower LTV ratios and higher equity funding of the projects.
COVID-19 has pushed the Retails REITs plan by at least two years - We expect
malls to achieve FY20 monthly revenue run-rate from 3QFY22. This COVID-
induced setback is sentimentally negative for the sector as the absence of
liquidity, both on the debt and equity sides, may result in WACC and Cap rates
expansion for the sector. The stronger promoters may still be able to get equity
funding as long-term growth drivers on consumption remain intact.
The category-wise breakup of mall area
Category Area (% of GLA) Potential threat from an online shift
Department store 20-25% High
Food & beverages 15-20% Low
Multiplexes 8-10% High
Supermarket 5% High
Family entertainment centres 2-3% Low
Electronics 2% Medium
Others 35-45% Medium
Source: Industry sources, HSIE Research *Others include watches, jewellery, beauty & spa, home décor,
boutique shops, standalone apparel shops, accessories etc.
Pandemic has upended the
real estate market,
particularly retail and
commercial
We are likely to see some
structural changes and
existing trends are likely to
intensify
Commercial office segment
is facing headwinds as
work from home is getting
institutionalized
Consumption recovery at
malls could be slower as
increasing number of
people sign up on online
platforms
21 August 2020 Initiating Coverage
Phoenix Mills
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Foot ‘falls’ – provides attractive entry In the past three months, Phoenix Mills Ltd (PML) has corrected 30% on the
back of (1) COVID-led mall closures, (2) concerns over work from home, (3)
likely correction in retail rents, and (4) concerns over the long road ahead to
normalcy. Financial concerns on likely equity dilution to meet FY21-22E cash
deficit of Rs 6.2bn and the higher share of equity requirement for Capex assets
have led to further de-rating. However, we believe that consumption will
mean revert once the vaccine is in place. Strong market positioning, marquee
assets, and robust financial track record place PML in a position to tide over
the current headwinds. We believe the company is 'ripe for consumption' and
initiate coverage with a SOTP of Rs 828/sh.
Mall rental highly linear to consumption growth: We have tried to map the
larger mall categories universe growth with PML consumption growth and
find high/significant linear relationship for the categories of apparels,
grocery, entertainment, etc. Based on the aggregate categories' growth data,
we arrive at a regression coefficient of ~0.5x. This implies that, for categories
universe growth of 1%, PML consumption will see a 0.5% growth. With
rising income levels, the consumption share increase may lead to PML's
revenue share being higher than the minimum guaranteed (MG) for the
categories, which may result in the company realizing higher overall rental
CAGR. Though in the near term, consumption may remain muted.
FY20-25E rental CAGR of 13% to be driven by new asset additions: PML
has a development pipeline of five new malls for the next five years with a
varying timeline of completions. The Lucknow mall is already operational
while, Ahmedabad, Indore, Bengaluru, and Pune ones will be operational by
FY20-25E. We have built in 12-18 months of delay to factor in COVID-19
impact. The company's gross rental income is expected to increase from Rs
10bn during FY20 to Rs 19bn at 13% CAGR whilst the economic share of
rentals is expected to grow from Rs 8.6bn to Rs 14.4bn at 11% CAGR over
FY20-25E. This shall be achieved through a mix of growth and potential
escalations/repricing.
Balance sheet stable, borrowing costs trending down: PML balance sheet is
robust as large part of debt is secured by LRDs. On the back of strong
financial performance, PML has one of the best interest rates vs peers and
has seen a decreasing trend in the past six years on interest costs. Net D/E is
stable at 1.2x as of FY20. A huge part of the debt is for retail malls.
Residential inventory monetization key for further re-rating: PML has a
(nearing completion) residential inventory of Rs 14bn, monetisation of
which may take off the pressure on retail malls Capex and bridge the cash
shortfall of Rs 6.2bn over FY21-22E. The company also has office portfolio of
Rs 2bn with a robust development pipeline. We await more detailed plans
on new office Capex timelines and financial tie-ups. We currently capture
the same as 10% NAV premium (Rs 75/sh).
Financial summary* Year Ending March (Rs mn) FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Net Sales 18,246 16,198 19,816 19,411 10,643 18,969 21,972
EBITDA 8,469 7,776 9,931 9,671 4,611 9,717 12,214
APAT 1,673 2,423 4,211 3,347 (435) 2,615 4,224
Diluted EPS (Rs) 10.9 15.8 27.5 21.9 (2.84) 17.1 27.6
P/E (x) 59.4 41.0 23.6 29.7 (228.4) 38.0 23.5
EV / EBITDA (x) 15.9 17.9 14.4 14.8 31.6 15.4 12.1
RoE (%) 8.6 8.1 12.2 8.4 (2.1) 6.1 9.7
Source: Company, HSIE Research, * Consolidated
BUY
CMP (as on 20 Aug 2020) Rs 649
Target Price Rs 828
NIFTY 11,312
KEY STOCK DATA
Bloomberg code PHNX IN
No. of Shares (mn) 153
MCap (Rs bn) / ($ mn) 100/1,326
6m avg traded value (Rs mn) 116
52 Week high / low Rs 980/465
STOCK PERFORMANCE (%)
3M 6M 12M
Absolute (%) 32.6 (24.1) 3.2
Relative (%) 8.5 (17.0) 0.9
SHAREHOLDING PATTERN (%)
Dec-19 Mar-20
Promoters 59.11 59.11
FIs & Local MFs 9.90 10.17
FPIs 25.74 25.74
Public & Others 5.25 4.98
Pledged Shares 0.0 0.0
Source : BSE
Parikshit D Kandpal, CFA
+91-22-6171-7317
Chintan Parikh
+91-22-3021-7330
Rohan Rustagi
+91-22-3021-7355
Page | 22
Phoenix Mills : Initiating Coverage
Mall rental growth has high linearity with consumption growth
We have tried to map the categories universe growth with PML consumption growth
and find high/significant linear relationship for the categories of apparels, grocery,
entertainment, etc. As consumption share increases with rising income levels, it may
lead to revenue share being higher than MG for these categories. PML may witness a
higher overall rental CAGR. In terms of rising aspirations, we are seeing a post-
COVID trend of consumers looking to ramp up spends on personal wellbeing and
personal consumption, which bodes well for PML.
Retailers growth and PML growth (%)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Apparel 86 64 74 30 29 59 13 11 0
Beauty & spa 7 10 2 4 14 58 5 0 (7)
Department store 110 21 19 73 17 12 17 10 14
Entertainment 30 30 60 49 9 23 12 12 23
Food & beverages 26 43 32 23 16 14 9 18 (10)
Footwear 15 19 (7) 27 23 (4) 8 4 8
Grocery 167 58 58 19 4 82 72 7 14
Jewellery & accessories 47 33 16 36 14 1 8 22 16
Total 57 34 26 37 16 22 22 13 11
PML consumption growth YoY 80 66 97 57 22 10 7 9 9
Source: Ace Equity, HSIE Research
Overall
Source: Ace Equity, HSIE Research
Correlation coefficients
Source: Ace Equity, HSIE Research
We have looked at revenue
growth of some of the
clients that occupy PML
malls
Revenue growth of these
retailers and consumption
growth at PML malls have
high correlation across
categories
We expect PML to benefit
from rise in consumer
spend after consumption
normalizes
y = 0.4892x + 0.1279
0%
10%
20%
30%
40%
50%
60%
0% 10% 20% 30% 40% 50% 60% 70% 80%
(0.40)
(0.20)
-
0.20
0.40
0.60
0.80
1.00
Ret
ail
ers
tota
l gro
wth
Ap
pa
rel
Bea
uty
& s
pa
Dep
art
men
t st
ore
En
tert
ain
men
t
Fo
od
& b
ever
ag
es
Fo
otw
ear
Gro
cery
Jew
elle
ry &
acc
esso
ries
Page | 23
Phoenix Mills : Initiating Coverage
Repricing opportunity across the portfolio
Retail assets % FY21E FY22E FY23E Total
HSP & Palladium 16% 12% 24% 52%
PMC Kurla 24% 34% 13% 71%
PMC Pune 20% 19% 16% 55%
PMC Bangalore 26% 38% 11% 75%
PMC Chennai 20% 31% 25% 76%
Source: Company, HSIE Research
Under-construction retail assets
Project
Name City
Leasable
Area
(mn sqft)
Cumulative
Capex
incurred
(Rs mn)
Capex
Remaining
(Rs mn)
Status Tentative
commissioning
PMC
Wakad Pune 1.1 4,646 3,854
Excavation
completed and
work done till
lower ground floor
slab for part - 1
1HFY24
PMC
Hebbel Bengaluru 1.2 8,396 9,604
Excavation
completed and
foundation and
basement
slab work almost
complete
1HFY24
PMC Indore 1.0 3,118 4,382
The biggest retail
destination of
Madhya Pradesh;
Work level is at an
advanced stage
1HFY23
Palladium Ahmedabad 0.7 4,598 3,402 95% excavation
work completed 1HFY23
Palassio Lucknow 0.9
Completed 2QFY21
Total
4.9 20,758 21,242
Source: Company, HSIE Research
A large part of the asset
portfolio is coming up for
renewals over FY21-23E. In
this challenging
environment, it may be
difficult to achieve the re-
pricing potential and PML
may have to continue with
some reliefs to tenants.
Though currently the
rental negotiations have
been deferred for few
months
Key assets under
construction provide
growth potential to
overall portfolio
Page | 24
Phoenix Mills : Initiating Coverage
Gross retail assets rental potential
(Rs mn) FY20 FY21E FY22E FY23E FY24E FY25E
HSP Phoenix 3,486 1,496 3,419 3,755 3,975 4,155
Market Cities:
MC Kurla (S) 1,273 519 1,218 1,308 1,373 1,442
MC Pune (S) 1,681 657 1,618 1,718 1,824 1,916
MC Bangalore East (S) 1,472 890 1,434 1,505 1,581 1,660
Chennai MC (A) 1,822 759 1,813 1,946 2,110 2,215
CPPIB – Bengaluru - - - - 1,711 2,275
CPPIB – Pune - - - - 490 1,303
CPPIB – Indore - - - 424 1,069 1,123
Ahmedabad – Bsafal - - - - 407 1,100
Lucknow - Gomti Nagar - 468 1,106 1,225 1,287 1,351
Total MC 6,248 3,293 7,187 8,126 11,851 14,384
PUM Lucknow (BARE) 318 176 267 301 301 346
PUM Bareilly (BARE) 224 124 217 244 244 281
BARE Total 542 299 485 545 545 627
Total Lease Rentals (Rs mn) 10,275 5,088 11,091 12,426 16,371 19,166
YoY Growth (%)
-50% 118% 12% 32% 17%
Source: Company, HSIE Research
Gross Retail rental income ramp up by FY25
Source: Company, HSIE Research
We forecast that PML’s
gross rental revenue would
increase to Rs 19bn by
FY25E (+90%). This will be
achieved through a mix of
escalation in operational
assets rental and new
additions of under-
construction assets
For FY20-25E, we model
for gross rental CAGR of
13%
10
19
2
2 1 1
1 1
8
10
12
14
16
18
20
FY
20
Ret
ail
Ren
tal
fro
m O
per
ati
on
al
Ass
ets
Po
ten
tia
l
Esc
ala
tio
n/R
enew
al in
Op
era
tio
na
l ass
ets
CP
PIB
-B
eng
alu
ru
CP
PIB
-P
un
e
CP
PIB
-In
do
re
Ah
med
ab
ad
-B
safa
l
Lu
ckn
ow
-G
om
ti
Na
ga
r
Ret
ail
Rea
nta
l b
y F
Y2
5
Rs bn
13% CAGR
Page | 25
Phoenix Mills : Initiating Coverage
Retail rental-PML economic interest
(Rs mn) FY20 FY21E FY22E FY23E FY24E FY25E
HSP Phoenix 3,486 1,496 3,419 3,755 3,975 4,155
Market Cities:
MC Kurla (S) 1,273 519 1,218 1,308 1,373 1,442
MC Pune (S) 1,681 657 1,618 1,718 1,824 1,916
MC Bangalore East (S) 750 454 731 768 806 846
Chennai MC (A) 911 380 907 973 1,055 1,108
CPPIB – Bengaluru - - - - 872 1,160
CPPIB – Pune - - - - 250 665
CPPIB – Indore - - - 216 545 573
Ahmedabad – Bsafal - - - - 204 550
Lucknow - Gomti Nagar - 468 1,106 1,225 1,287 1,351
Total MC 4,616 2,477 5,579 6,208 8,216 9,610
PUM Lucknow (BARE) 318 176 267 301 301 346
PUM Bareilly (BARE) 224 124 217 244 244 281
BARE Total 542 299 485 545 545 627
Total Lease Rentals (Rs mn) 8,643 4,273 9,483 10,508 12,736 14,392
YoY Growth (%)
-51% 122% 11% 21% 13%
Retail rental income ramp up by FY25 (PML economic interest)
Source: Company, HSIE Research
Asset-wise rental
projection is highlighted in
the exhibit. We have
assumed 12-18 months
delay in under-
construction assets
completion. We expect
PML economic interest to
translate to rentals
increasing from Rs 8.6bn in
FY20 to Rs 14.4bn in FY25E
Our assumptions on rental
escalation are conservative
over near to medium term
due to COVID-19
pandemic. We have
factored in 4-5% annual
escalation for base
business rentals
For FY20-25E, we model
for PML a share of rental
CAGR of 11%
9
14
1 1
1 1 1
1
6
8
10
12
14
16
FY
20
Ret
ail
Ren
tal
fro
m O
per
ati
on
al
Ass
ets
Po
ten
tia
l
Esc
ala
tio
n/R
enew
al in
Op
era
tio
na
l ass
ets
CP
PIB
-B
eng
alu
ru
CP
PIB
-P
un
e
CP
PIB
-In
do
re
Ah
med
ab
ad
-B
safa
l
Lu
ckn
ow
-G
om
ti
Na
ga
r
Ret
ail
Rea
nta
l b
y F
Y2
5
Rs bn
11% CAGR
Page | 26
Phoenix Mills : Initiating Coverage
Consumption growth has plateaued
Source: Company, HSIE Research
Rental Income Growth
Source: Company, HSIE Research
Consumption growth has
plateaued as assets mature
and partly on account of
COVID-19 lockdown
during second half of
4QFY20
Rental income growth also
impacted by COVID-led
lockdown during the
second half of 4QFY20
0
10
20
30
40
50
60
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
Consumption (Rs bn) YoY Growth % (RHS)
0
5
10
15
20
25
30
35
40
-
2.0
4.0
6.0
8.0
10.0
12.0
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
Rental Income Rs bn YoY Growth % (RHS)
Page | 27
Phoenix Mills : Initiating Coverage
Balance sheet – stable, borrowing costs trending down
PML's balance sheet is strong, with a large part of the debt secured by LRDs. On the
back of strong financial performance, the company has one of the best interest rates
vs peers. We have seen a decreasing trend in the company for the past six years on
interest costs.
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Gross debt (Rs bn) 22 34 34 36 41 40 45 46
Cash (Rs bn) 1 1 1 2 6 0 2 1
Net debt (Rs bn) 21 33 33 34 36 40 44 44
Net D/E 1.2 1.9 2.0 1.8 1.8 1.4 1.3 1.2
Effective cost of debt (%)
12.3% 11.8% 11.0% 10.2% 8.9% 9.4% 8.9%
NWC (Days) 398 248 273 289 328 275 150 169
Source: Company, HSIE Research
Effective Cost of Debt
Source: Company, HSIE Research
Net D/E Ratio
Source: Company, HSIE Research
PML enjoys one of the
lowest borrowing costs
amongst the peers
A strong track record of
timely mall delivery and
quick ramp-up of
occupancies have helped
establish a robust
execution capability
Net D/E has been reduced
from 1.93x in FY14 to 1.2x
FY20, driven by higher
profitability and right mix
of equity and debt in
Capex
CPPIB investment for the
new under-construction
malls also resulted in
lower debt build-up
12.3%11.8%
11.0%
10.2%
8.9%9.4%
8.9%
5.0%
7.0%
9.0%
11.0%
13.0%
15.0%
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
1.93 1.98
1.85 1.75
1.39
1.25 1.20
0.70
0.90
1.10
1.30
1.50
1.70
1.90
2.10
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
Page | 28
Phoenix Mills : Initiating Coverage
Residential – Rs 14bn ready inventory monetisation key for
re-rating
PML has launched two projects (OBW Tower 1 to 7 and Kessaku) in residential
segment with a total saleable area of 2.83mn sqft, of which 1.58mn sqft had been sold
until FY20-end. While OBW Tower 1-6 is complete, the company plans to incur
Capex of ~Rs 1bn to complete OBW Tower 7 and Kessaku in FY21. PML is also
looking to reconfigure its luxurious offerings under Kessaku to align them with
current requirements. The inventory of Rs 14bn and pending collection of Rs 1.6bn
provide enough liquidity to carry out the Capex plans. Besides, in the current
circumstances, the company is not planning to launch new projects in the residential
space. Hence, with the monetization of inventory and collection of pending dues, the
residential segment could provide Rs ~15bn positive cashflow in the near term.
Residential projects
Project Name Saleable area (mn sqft)
Area sold (mn sqft) Sales value (Rs mn) Total Launched Balance
One Bangalore West (OBW)* 2.41 1.80 0.61 1.31 12,724
Kessaku, Bengaluru 1.03 1.03 0.00 0.27 3,672
Total 3.44 2.83 0.61 1.58 16,396
Source: Company, HSIE Research; *Of the total 9 towers planned, only 1-6 has been launched & completed,
and tower 7 was launched in July '19
Commercial – office rental of Rs 2bn, limited visibility on
future expansion as of now
Commercial rental
(Rs mn) FY20 FY21E FY22E FY23E
Art Guild House 446 354 406 423
Paragon Plaza 316 259 291 302
Fountainhead Towers 1-3 1,131 986 1,292 1,442
Commercial Rental 1,893 1,600 1,990 2,167
YoY Growth (%)
-15% 24% 9%
Source: Company, HSIE Research
PML has unsold (nearing
completion) residential
inventory of Rs 14bn with
pending collection of Rs
1.6bn. The total residual
construction cost is Rs 1bn
We believe a large part of
the company’s inventory is
in the luxury real estate
segment and hence will
take time to get monetised
PML has reconfigured the
same to a smaller ticket
size and sales traction is
awaited
PML has current office
rental potential of Rs 2bn
and we have factored the
same into our valuation
We have not ascribed any
development value to
future office pipeline as its
still in early stages of
conceptualization. We
have though given a 10%
NAV premium for same in
overall PML valuation
Page | 29
Phoenix Mills : Initiating Coverage
Cashflow statement – we model for cumulative FY21-22E cash deficit of ~Rs 6.2bn
PML (Rs mn) FY21E FY22E
Inflows
Customer collections 2,298 2,947
Rentals 5,088 11,091
Hospitality (net) 838 1,511
Property management (net) 2,165 3,711
Events/Other income/deposits 1,628 2,166
IPO/IPP Proceeds - -
Total inflow 12,017 21,426
Outflows
Construction outflow 800 1,000
Corporate and staff 6,032 9,252
Construction/overheads total 6,832 10,252
Operational Cash flows 5,185 11,175
Interest payments 4,476 4,836
Income taxes (243) 705
Total financial outflows 4,233 5,541
Net cash flow (post interest) 952 5,634
Rental Capex
Office 500 500
Retail 3,300 7,000
Hotels
Total capex 3,800 7,500
Cash flow post capex (2,848) (1,866)
Land payments
Stake buyouts (Cessna and others)
Dividend paid 627 627
Principal Repayment 2,500 3,500
Capital outflows 3,127 4,127
Net inflows (5,974) (5,991)
Cash in hand ex DSRA 5,775 (199)
Net shortfall (199) (6,192)
Source: Company, HSIE Research
We estimate FY21-22E
cumulative cash deficit of
Rs 6.2bn and hence fund
raise is imminent
A large part of the deficit
can be bridged by
postponing capex, in
absence of fund raise
Page | 30
Phoenix Mills : Initiating Coverage
PML-owned assets PML witnessed a 61% YoY decline in rental income during 1QFY21 on account of
lockdown and High Street Phoenix (HSP) remaining shut for the entire quarter. We
expect a gradual pickup in consumption as the mall has opened from 5 August 2020,
though weakness may persist as footfalls remain weak. Only genuine need-based
buyers are visiting the mall. We expect consumption to remain at subdued and sub-
25% levels with gradual ramp-up towards the festive season up to Diwali.
Quarterly Performance 1Q
FY21
1Q
FY20
4Q
FY20
YoY
(%/bps)
QoQ
(%/bps) FY20 FY19
YoY
(%/bps)
Rental Area (mn sqft) 0.77 0.77 0.77 - - 0.77 0.77 -
Rental Rate (Rs/sqft/month - 406 403 NA NA 401 388 3.4
Occupancy (%) 0% 93% 94% NA NA 95% 95% -
Trading Density
(Rs/sqft/month) - 3,025 3,208 NA NA 3,167 2,943 7.6
Consumption (Rs mn) - 4,228 3,663 NA NA 17,103 17,044 0.3
Rental Income 344 881 780 (61.0) (55.9) 3,486 3,432 1.6
Recoveries 57 252 202 (77.4) (71.8) 959 974 (1.5)
Total Income 401 1,133 982 (64.6) (59.2) 4,445 4,406 0.9
EBITDA 269 780 797 (65.5) (66.2) 3,049 3,029 0.7
EBITDA margin on Rental
Income 78% 89% 102% (1,034) (2,398) 87% 88% (79)
EBITDA margin on Total
Income 67% 69% 81% (176) (1,408) 69% 69% (15)
Source: Company, HSIE Research
Phoenix Market City Bengaluru Market City Bengaluru rental income fell by 67% YoY during the quarter as the mall
remained shut for a good part of 1QFY21. Since early June, Market City has resumed
operations with 82% GLA, and daily consumption had reached 38% as of June '20
level during the third week.
Quarterly Performance
1Q
FY21
1Q
FY20
4Q
FY20
YoY
(%/bps)
QoQ
(%/bps) FY20 FY19
YoY
(%/bps)
Rental Area (mn sqft) 0.98 0.98 0.98 - - 0.98 0.98 -
Rental Rate (Rs/sqft/month - 124 130 NA NA 129 119 8.4
Occupancy (%) 0% 97% 98% NA NA 97% 98% (100)
Trading Density (Rs/sqft/month) - 1,749 1,670 NA NA 1,795 1,680 6.8
Consumption (Rs mn) - 3,364 2,552 NA NA 13,140 12,843 2.3
Rental Income 120 359 307 (66.6) (60.9) 1,426 1,392 2.4
Recoveries 72 184 157 (60.9) (54.1) 703 678 3.7
Total Income 192 543 464 (64.6) (58.6) 2,129 2,070 2.9
EBITDA 135 385 297 (64.9) (54.5) 1,457 1,419 2.7
EBITDA margin on Rental Income 113% 107% 97% 526 1,576 102% 102% 23
EBITDA margin on Total Income 70% 71% 64% (59) 630 68% 69% (11)
Source: Company, HSIE Research
Page | 31
Phoenix Mills : Initiating Coverage
Phoenix Market City Pune Rental income from Market City Pune fell by 71% YoY during the quarter. The mall
was closed for entire 1QFY21 and has reopened on 5 August 2020. We expect a slight
recovery from 2QFY21.
Quarterly Performance
1Q
FY21
1Q
FY20
4Q
FY20
YoY
(%/bps)
QoQ
(%/bps) FY20 FY19
YoY
(%/bps)
Rental Area (mn sqft) 1.13 1.13 1.13 - - 1.13 1.13 -
Rental Rate (Rs/sqft/month - 125 128 NA NA 128 116 10.3
Occupancy (%) 0% 98% 95% NA NA 96% 96% -
Trading Density (Rs/sqft/month) - 1,441 1,338 NA NA 1,453 1,334 8.9
Consumption (Rs mn) - 3,331 2,371 NA NA 12,593 12,207 3.2
Rental Income 125 432 350 (71.1) (64.3) 1,667 1,589 4.9
Recoveries 47 206 174 (77.2) (73.0) 778 793 (1.9)
Total Income 172 638 524 (73.0) (67.2) 2,445 2,382 2.6
EBITDA 118 440 324 (73.2) (63.6) 1,645 1,566 5.0
EBITDA margin on Rental Income 94% 102% 93% (745) 183 99% 99% 13
EBITDA margin on Total Income 69% 69% 62% (36) 677 67% 66% 154
Source: Company, HSIE Research
Phoenix Market City Kurla Rental income came down by 73% YoY as the mall remained shut during the
lockdown period. The mall has reopened from 5 August 2020.
Quarterly Performance
1Q
FY21
1Q
FY20
4Q
FY20
YoY
(%/bps)
QoQ
(%/bps) FY20 FY19
YoY
(%/bps)
Rental Area (mn sqft) 1.1 1.1 1.1 - - 1.1 1.1 -
Rental Rate (Rs/sqft/month - 101 110 NA NA 106 98 8.2
Occupancy (%) 0% 93% 93% NA NA 92% 95% (300)
Trading Density (Rs/sqft/month) - 1,222 1,129 NA NA 1,226 1,174 4.4
Consumption (Rs mn) - 2,589 1,896 NA NA 9,791 9,559 2.4
Rental Income 87 323 283 (73.1) (69.3) 1,265 1,216 4.0
Recoveries 53 181 153 (70.7) (65.4) 736 750 (1.9)
Total Income 140 504 436 (72.2) (67.9) 2,001 1,966 1.8
EBITDA 78 323 242 (75.9) (67.8) 1,229 1,188 3.5
EBITDA margin on Rental Income 90% 100% 86% (1,034) 414 97% 98% (54)
EBITDA margin on Total Income 56% 64% 56% (837) 21 61% 60% 99
Source: Company, HSIE Research
Page | 32
Phoenix Mills : Initiating Coverage
Phoenix Market City Chennai Market City Chennai witnessed a 66% YoY decline in rental income during the
quarter as the mall remained shut for 1QFY21.
Quarterly Performance
1Q
FY21
1Q
FY20
4Q
FY20
YoY
(%/bps)
QoQ
(%/bps) FY20 FY19
YoY
(%/bps)
Rental Area (mn sqft) 0.98 0.98 0.98 - - 0.98 0.98 -
Rental Rate (Rs/sqft/month - 139 139 NA NA 139 134 3.7
Occupancy (%) 0% 99% 96% NA NA 96% 93% 300
Trading Density (Rs/sqft/month) - 1,435 1,259 NA NA 1,363 1,394 (2.2)
Consumption (Rs mn) - 2,677 2,256 NA NA 11,255 11,068 1.7
Rental Income 134 394 385 (66.0) (65.2) 1,736 1,528 13.6
Recoveries 57 206 233 (72.3) (75.5) 943 862 9.4
Total Income 191 600 618 (68.2) (69.1) 2,679 2,390 12.1
EBITDA 124 437 346 (71.6) (64.2) 1,733 1,625 6.6
EBITDA margin on Rental Income 93% 111% 90% (1,838) 267 100% 106% (652)
EBITDA margin on Total Income 65% 73% 56% (791) 893 65% 68% (330)
Source: Company, HSIE Research
Operational retail assets
Retail Assets City GLA (mn sqft) Occupancy FY20 (Rs mn)
Consumption Rental
HSP & Palladium Mumbai 0.77 95% 17,102 3,486
MC Kurla (S) Mumbai 1.14 92% 9,790 1,270
PMC Pune 1.19 96% 12,592 1,667
PMC Bengaluru 1.00 97% 13,140 1,426
PMC & Palladium Chennai 1.22 96% 11,538 1,809
PUM Lucknow 0.33
3,113 318
PUM Bareilly 0.31
2,033 224
Total
5.96
69,308 10,200
Source: Company, HSIE Research
Malls open during – 1QFY21
Asset Name City GLA (mn sqft)
Operational (%) Avg. daily spend vs Jun'19
Total Permissible Operational Week 1 Week 2 Week 3
PMC Bengaluru 1.00 0.83 0.67 81% 32% 35% 38%
Phoenix United Lucknow 0.33 0.27 0.23 85% 99% 82% 86%
Phoenix United Bareilly 0.31 0.25 0.22 88% 33% 29% 34%
Source: Company, HSIE Research
Page | 33
Phoenix Mills : Initiating Coverage
Valuation–NAV-based target price of Rs 828/sh
SOTP valuation
We initiate PML with a BUY and SOTP of Rs 828/sh. We have adopted the DCF
methodology to arrive at PML's NAV/sh. We value the real estate business (annuity +
residential) at Rs 829/sh, hotels at Rs84/sh, office assets at Rs 43/sh and other assets
(PUM Lucknow & PUM Bareilly) at Rs 46/sh. We do not ascribe any NAV discount to
PML as we have only valued the projects which have visibility over the next five
years. Subsequently, we reduce our valuation by Rs 250/sh to account for net debt of
Rs 38bn (PML's economic interest) We ascribe a 10% NAV premium to factor in the
potential office development pipeline. We arrive at NAV-based SOTP of Rs 828/sh.
Valuation summary
Project name NAV - Rs mn PML stake
PML Share
of NAV - Rs
mn
Value (Rs/sh)
High Street Phoenix 39,377 100% 39,377 257
Market Cities
87,397 571
Kurla Market City 15,262 100% 15,262 100
Pune Market City 18,453 100% 18,453 121
Bangalore East - Whitefield Market City 19,443 51% 9,916 65
Pune MC- Wakad 5,427 51% 2,768 18
Bengaluru Hebbal Market City 13,905 51% 7,092 46
Indore Market City 3,882 51% 1,980 13
Ahmedabad Market City 3,613 50% 1,807 12
Lucknow - Gomti Nagar Market City 12,861 100% 12,861 84
Bangalore West - Malleswaram (OBW &
Kessaku) 8,400 80% 6,720 44
Chennai Market City 21,075 50% 10,540 69
Total
126,774 829
Add: Value of other assets/subsidiaries
-
Shangri-La Hotel, HSP 17,507 73% 12,780 84
PUM Lucknow, BARE 3,591 100% 3,591 23
PUM Bareilly, BARE 3,530 100% 3,530 23
Office Assets 6,623 100% 6,623 43
Total
153,298 964
Less: Consolidated Net Debt - FY20
(adjusted for Shangri-La CCDs) 46,297 83% 38,195 250
Less: Balance for SPV stake buyouts
- -
NAV
115,103 752
Premium for future development
pipeline – 10% 11,510 75
SOTP NAV
126,613 828
Source: Company, HSIE Research
Retail Malls- Key Assumptions
Mall Status WACC CAP Rate
HSP Phoenix Operational 12.0% 10.1%
MC Kurla (S) Operational 11.0% 9.0%
MC Pune (S) Operational 11.0% 9.0%
MC Bangalore East (S) Operational 11.0% 9.0%
PUM Lucknow (BARE) Operational 11.0% 9.0%
PUM Bareilly (BARE) Operational 11.0% 9.0%
Chennai MC (A) Operational 11.0% 9.0%
Lucknow - Gomti Nagar Operational 11.0% 9.0%
CPPIB - Bengaluru Under Construction 12.5% 10.5%
CPPIB - Pune Under Construction 12.5% 10.5%
CPPIB - Indore Under Construction 12.5% 10.5%
Ahmedabad - Bsafal Under Construction 12.5% 10.5%
Source: Company, HSIE Research
We initiate BUY on PML
with NAV based SOTP of
Rs 828/sh. We have
ascribed 10% NAV
premium to factor in future
office development plans
Under construction
Malls GNAV Rs/sh
Pune-Wakad 18
Bengaluru-Hebbel 46
Indore 13
Ahmedabad 12
GNAV 89
Page | 34
Phoenix Mills : Initiating Coverage
NAV Sensitivity Analysis
Sensitivity to WACC
Our model is sensitive to changes in WACC assumptions. In our base case, we
have assumed WACC in the range of 11-12.5%. For every 1% change in WACC,
the NAV will change by approximately 4%.
% Change in WACC -2 -1 11-12.5 1 2
NAV (Rs/sh) 912 868 828 790 756
% Change in NAV 10 5 - -4 -9
Sensitivity of NAV to changes in CAP rate
In our base case, we have assumed a CAP rate in the range of 9-10.5%. For every
100bps change in the CAP rate, the NAV will change by approximately 8%.
% Change in CAP Rate -2 -1 9-10.5 1 2
NAV (Rs/sh) 1,003 905 828 765 713
% Change in NAV 21 9 - -8 -14
Sensitivity of NAV to changes in lease escalation rate
In our base case, we have assumed a lease escalation rate of 5%. For every 100bps
change in the lease escalation rate, the NAV will change by approximately 4%.
% Change in lease rental escalation rate -2 -1 5 1 2
NAV (Rs/sh) 760 793 828 863 900
% Change in NAV -8 -4 - 4 9
1% increase in WACC
impacts our NAV
negatively by 4%
Every 100bps increase in
CAP rate impacts our NAV
negatively by 8%
100bps increase in lease
escalation rate increases
our NAV by 4%
Page | 35
Phoenix Mills : Initiating Coverage
No listed history of Indian's Retail REITs – consumption sector
close proxy play
PML does not have a listed pure-play retail mall proxy for comparison; hence, it is
difficult to draw a peer group for the company. As per our analysis earlier, the
company is a derivative play on consumption; in the exhibit below, we juxtapose
PML's key financial parameters with the HSIE coverage universe. We believe the
current valuation ratios leave enough headroom for re-rating once consumption
picks up. PML is a well-placed proxy to ride the consumption re-rating.
Company
Revenue CAGR EBITDA CAGR PAT CAGR EV
/EBITDA
*
PE# RoE* RoCE* 5yr 10yr 15yr
FY20-
23E 5yr 10yr 15yr 5yr 10yr 15yr
FMCG
ITC 6 10 13 6 7 12 13 10 14 15 11 16 25 45
HUL 6 8 9 11 13 13 13 12 13 13 47 56 85 226
Nestle 6 9 12 10 7 10 12 12 10 14 54 63 71 74
Dabur 5 10 12 8 6 11 15 7 12 17 49 50 25 45
Britannia 9 12 13 11 16 26 21 17 30 21 49 45 32 43
GCPL 5 17 23 7 9 18 24 10 16 21 34 40 19 19
Marico 6 11 14 7 11 15 21 13 15 20 32 37 38 42
Colgate 4 8 11 7 8 10 14 8 7 14 32 40 54 65
Emami 7 10 18 4 5 11 22 1 11 21 22 26 25 23
Jubilant 14 25 30 7 17 24 35 26 27 47 42 59 28 28
UNSP 3 4 7 5 25 4 11 33 9 9 29 47 23 16
Radico 10 8 13 7 17 8 12 26 11 13 15 17 18 14
FMCG Average
35 41 37 53
Consumer
durable
Havells 12 15 21 7 8 13 20 10 12 22 34 41 17 21
Voltas 8 5 12 4 11 4 19 10 4 18 29 31 13 22
Crompton 26 NA NA 6 30 NA NA 40 NA NA 26 33 30 39
Symphony 16 19 29 2 10 15 NA 9 17 NA 26 33 28 42
V-Guard 7 19 21 8 14 17 22 20 21 26 26 32 19 20
TTK Prestige 9 NA NA 8 10 NA NA 13 NA NA 27 33 16 20
Consumer
durable average
28 34 20 27
Retail
Titan 12 16 NA 9 17 20 NA 13 20 NA 42 60 23 15
Avenue
Supermarts 31 38 NA 21 35 42 NA 45 51 NA 68 66 16 16
Trent 19 19 NA 10 59 32 NA 9 14 NA 36 176 7 9
ABFRL 36 NA NA 4 45 NA NA NM NM NM 27 NM -
6
-
10
V-MART 18 28 NA 11 17 20 NA 13 20 NA 25 39 18 18
Shoppers Stop -4 9 NA 1 -8 5 NA NM NM NA 8 NM NM NM
TCNS Clo 31 NA NA 4 17 20 NA 13 20 NA 22 39 23 15
Retail Average
33 76 14 10
Phoenix Mills 3 32 NA 4 4 29 NA 41 18 NA 15 38 8 9
Source: Company, HSIE Research, *FY20, #FY22E
Page | 36
Phoenix Mills : Initiating Coverage
Financials Consolidated Income Statement Year ending March (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Net Sales 16,533 17,786 18,246 16,198 19,816 19,411 10,643 18,969 21,972
Growth (%) 14.1 7.6 2.6 (11.2) 22.3 (2.0) (45.2) 78.2 15.8
Material Expenses 2,567 4,725 4,404 1,319 2,189 1,959 783 862 948
Employee Expenses 915 1,233 1,403 1,473 1,615 1,655 1,573 1,651 1,734
Other Operating Expenses 5,186 3,957 3,970 5,630 6,080 6,126 3,676 6,739 7,075
EBIDTA 7,865 7,871 8,469 7,776 9,931 9,671 4,611 9,717 12,214
EBIDTA (%) 47.6 44.3 46.4 48.0 50.1 49.8 43.3 51.2 55.6
EBIDTA Growth (%) 15.9 0.1 4.9 3.4 4.4 (0.6) (13.0) 18.2 8.5
Other Income 312 312 472 556 851 585 614 645 677
Depreciation 1,681 1,773 1,953 1,983 2,042 2,076 2,586 2,661 2,781
EBIT 6,497 6,410 6,988 6,349 8,740 8,180 2,640 7,701 10,111
Interest 3,956 4,305 4,230 3,476 3,506 3,478 3,854 4,177 4,100
Exceptional items 938 387 - - 481 78 - - -
PBT 1,603 1,718 2,758 2,873 5,716 4,780 (1,214) 3,524 6,011
Tax 493 746 858 758 1,098 1,221 (243) 705 1,202
PAT 1,110 972 1,900 2,115 4,617 3,559 (972) 2,819 4,809
Minority Interest 553 203 212 135 760 538 (194) 564 962
Share of associates 43 17 (15) 442 353 326 342 360 378
EO items (net of tax) - - - - - - - - -
APAT 600 786 1,673 2,423 4,211 3,347 (435) 2,615 4,224
APAT Growth (%) (53.3) 31.0 112.8 44.8 73.8 (20.5) NA NA 61.6
EPS 2.4 5.1 10.9 15.8 27.5 21.9 (2.8) 17.1 27.6
EPS Growth (%) (72.4) 110.3 112.8 44.8 73.8 (20.5) NA NA NA
Source: Company, HSIE Research
Consolidated Balance Sheet As at March (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
SOURCES OF FUNDS
Share Capital 290 306 306 306 307 307 307 307 307
Reserves 16,447 18,380 20,053 28,213 34,435 36,777 35,716 37,704 41,302
Total Shareholder’s Funds 16,737 18,686 20,359 28,519 34,741 37,083 36,022 38,010 41,608
Minority Interest 6,212 4,511 4,723 4,661 12,233 12,788 12,594 13,157 14,119
Long Term Debt 33,834 34,004 39,004 34,509 39,810 41,075 45,075 49,075 50,075
Short Term Debt 189 2,432 2,432 5,612 5,659 4,656 4,656 4,656 4,656
Total Debt 34,023 36,436 41,436 40,121 45,469 45,731 49,731 53,731 54,731
Deferred Taxes (1,047) (1,108) (1,108) (1,394) (1,390) (612) (612) (612) (612)
Long Term Provisions & Others - - - - - - - - -
TOTAL SOURCES OF FUNDS 55,925 58,524 65,409 71,907 91,053 94,990 97,735 1,04,287 1,09,846
APPLICATION OF FUNDS
Net Block 41,303 43,530 44,077 52,939 61,489 60,795 62,092 61,740 62,654
CWIP 2,138 1,949 1,949 5,025 8,960 15,341 13,269 18,496 21,142
Goodwill - - - 3,711 3,711 3,711 3,711 3,711 3,711
Investments, LT Loans & Advances 1,997 1,860 2,360 8,290 7,450 5,897 5,897 7,897 9,897
Inventories 11,783 13,240 15,240 6,615 8,986 8,161 7,661 7,161 6,661
Debtors 2,192 3,201 3,701 1,292 1,955 2,017 2,117 2,217 2,317
Cash & Equivalents 920 1,956 5,788 406 1,920 1,407 3,434 3,252 6,296
ST Loans & Advances, Others 5,032 6,181 7,731 5,450 5,298 7,532 7,682 7,832 7,982
Total Current Assets 19,927 24,577 32,459 13,763 18,159 19,117 20,894 20,462 23,257
Creditors 1,050 1,217 1,339 1,099 1,479 1,626 1,789 1,968 2,165
Other Current Liabilities & Provns 8,390 12,175 14,098 10,722 7,237 8,245 6,340 6,052 8,648
Total Current Liabilities 9,441 13,392 15,436 11,821 8,716 9,871 8,129 8,020 10,813
Net Current Assets 10,487 11,185 17,023 1,942 9,444 9,246 12,765 12,443 12,443
Misc Expenses & Others - - - - - - - - -
TOTAL APPLICATION OF FUNDS 55,925 58,524 65,409 71,907 91,053 94,990 97,735 1,04,287 1,09,846
Source: Company, HSIE Research
Page | 37
Phoenix Mills : Initiating Coverage
Consolidated Cash Flow Year ending March (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Reported PAT 600 786 1,673 2,423 4,211 3,347 (435) 2,615 4,224
Non-operating & EO items 510 186 227 (308) 407 212 (537) 204 584
PAT from Operations 1,110 972 1,900 2,115 4,617 3,559 (972) 2,819 4,809
Interest expenses 3,956 4,305 4,230 3,476 3,506 3,478 3,854 4,177 4,100
Depreciation 1,681 1,773 1,953 1,983 2,042 2,076 2,586 2,661 2,781
Working Capital Change (1,419) 338 (2,006) 7,417 (5,749) (985) (1,492) 141 3,043
OPERATING CASH FLOW ( a ) 5,327 7,388 6,078 14,991 4,417 8,129 3,976 9,798 14,733
Capex (266) (4,000) (2,500) (15,013) (14,606) (7,801) (1,811) (7,536) (6,340)
Free cash flow (FCF) 5,061 3,388 3,578 (23) (10,189) 327 2,165 2,262 8,393
Investments (999) 137 (500) (440) 609 0 0 (2,000) (2,000)
INVESTING CASH FLOW ( b ) (1,265) (3,863) (3,000) (15,454) (13,997) (7,801) (1,811) (9,536) (8,340)
Share capital Issuance (120) 2,826 0 6,322 9,035 63 0 0 0
Debt Issuance (38) 2,413 5,000 410 5,301 878 4,000 4,000 1,000
Interest expenses (4,017) (4,305) (4,230) (3,516) (3,329) (3,256) (3,854) (4,177) (4,100)
Dividend (372) (509) (394) (442) (480) (555) (627) (627) (627)
FINANCING CASH FLOW ( c ) (4,546) 424 376 2,774 10,527 (2,869) (481) (804) (3,726)
NET CASH FLOW (a+b+c) (484) 3,949 3,454 2,311 947 (2,542) 1,685 (541) 2,666
Non-operating and EO items 1,156 0 394 (218) (800) (18) - - -
Closing Cash & Equivalents 920 4,562 5,788 308 396 1,407 3,434 3,252 6,296
Source: Company, HSIE Research
Key Ratios FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
PROFITABILITY (%)
GPM 84.5 73.4 75.9 91.9 89.0 89.9 92.6 95.5 95.7
EBITDA Margin 47.6 44.3 46.4 48.0 50.1 49.8 43.3 51.2 55.6
APAT Margin 3.6 4.4 9.2 15.0 21.2 17.2 (4.1) 13.8 19.2
RoE 3.3 4.3 8.6 8.1 12.2 8.4 (2.1) 6.1 9.7
Core RoCE 17.3 21.5 20.5 10.0 11.9 9.5 2.9 8.2 10.3
RoCE 12.0 11.6 11.7 10.0 11.9 9.5 2.9 8.2 10.3
EFFICIENCY
Tax Rate (%) 30.8 43.4 31.1 26.4 19.2 25.5 20.0 20.0 20.0
Asset Turnover (x) 0.3 0.3 0.3 0.3 0.2 0.2 0.1 0.2 0.2
Inventory (days) 256 257 285 246 144 161 271 143 115
Debtors (days) 46 55 69 56 30 37 71 42 38
Payables (days) 29 23 26 27 24 29 59 36 34
Cash Conversion Cycle (days) 273 289 328 275 150 169 284 148 118
Debt/EBITDA (x) 4.3 4.6 4.9 5.2 4.6 4.7 10.8 5.5 4.5
Net D/E 2.0 1.8 1.8 1.4 1.3 1.2 1.3 1.3 1.2
Interest Coverage 1.6 1.5 1.7 1.8 2.5 2.4 0.7 1.8 2.5
PER SHARE DATA
EPS (Rs/sh) 2.4 5.1 10.9 15.8 27.5 21.9 -2.8 17.1 27.6
CEPS (Rs/sh) 15.7 16.7 23.7 28.8 40.9 35.4 14.1 34.5 45.8
DPS (Rs/sh) 2.2 2.3 3.2 2.8 3.7 3.7 3.7 3.7 3.7
BV (Rs/sh) 115.4 122.1 133.1 186.4 227.1 242.4 235.4 248.4 272.0
VALUATION
P/E 266.4 126.7 59.5 41.1 23.7 29.8 (229.1) 38.1 23.6
P/BV 5.6 5.3 4.9 3.5 2.9 2.7 2.8 2.6 2.4
EV/EBITDA 16.2 17.0 16.0 17.9 14.4 14.9 31.6 15.4 12.1
OCF/EV (%) 4.2 5.5 0.0 0.1 0.0 0.1 0.0 0.1 0.1
FCF/EV (%) 4.0 2.5 2.6 (0.0) (7.1) 0.2 1.5 1.5 5.7
FCFE/Market Cap (%) 1.1 1.5 4.4 (3.1) (8.3) (2.1) 2.3 2.1 5.3
Dividend Yield (%) 0.3 0.4 0.5 0.4 0.6 0.6 0.6 0.6 0.6
Source: Company, HSIE Research
Page | 38
Strategy Thematics
Thematic reports by HSIE
Cement: WHRS – A key cog in the flywheel Autos: Where are we on “S” curve? FMCG: Defensive businesses but not valuations Autos: A changed landscape
Banks: Double whammy for some Escorts: Strengthening the core India Equity Strategy: Atma Nirbhar Bharat Indian IT: Demand recovery in sight
Life Insurance: Recovery may be swift with protection
driving margins
Retail: Whole flywheel is broken? Endurance Technologies: Moving up the value curve Appliances: Looing beyond near-term disruption
Pharma: Chronic therapy – A portfolio prescription Indian Gas: Looking beyond the pandemic Bajaj Finance: Long-term story intact despite FY21 glitch India Equity Strategy: Quarterly flipbook
Page | 39
Strategy Thematics
HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel,Mumbai - 400 013
Board : +91-22-6171 7330 www.hdfcsec.com
Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential
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